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. Taking sick days
2. Ending a cell contract early
3. Homemade putty and playdough
4. International travel for wedding
5. Making everyone happy
6. Basic 401(k) and Roth issue
7. Emergency fund for family
8. Alleviating stress
9. Savings bonds and 529s
10. Big debt problems
There are few things I like better than the smell of the outdoors after a warm spring rain. Things smell damp and a bit musty, but things smell alive.
That alive smell comes from the plants and other things emerging from their winter slumber, gulping up the nutrients and water around them, and growing.
It’s a wonderful smell. It’s something that makes me want to spend the next nine months almost entirely outside.
Q1: Taking sick days
My company gives employees 10 paid sick days per year (in addition to 2 weeks vacation). Once a year, whatever remaining sick days are left are cut in half and employees are allowed to “bank” that half with no expiration. (For example, if you have 2 sick days left at the year mark, you bank 1 day to carry indefinitely). I’m in a position where my 10 sick days are about to be cut to 5 if I don’t use any. My company is very generous with flexible work hours, so I’ve never used them for routine appointments. I’m wondering what would be the optimal way to use paid sick time. I’m rarely sick with no medical issues. Should I try to use up my sick time each year since it’s a paid 10 days that I earn or should I try to bank as many days while I’m well for future unexpected events?
If you have a real medical reason for using them, then use them, of course. Also, if you’re not planning on being at that employer for very long (less than another few years), then I’d find ways to use them. If not, I think banking them is a really, really sound idea.
When I was in high school, one of the teachers who had been teaching for the district for quite a few years suffered a heart attack in the middle of the school year. Like you, his job allowed him to “bank” some of his sick leave. Because he had used so little of it over his career, his entire period of recuperation – more than half a school year – was paid. That was incredible peace of mind for him.
Banking those sick days is essentially a form of insurance – it ensures that if something truly bad happens to you (a heart attack, a severe car accident), you will keep receiving your paycheck as normal while you recuperate. The more days you have built up, the better.
Q2: Ending a cell contract early
My wife and I rarely use our cell phones and thanks to your encouragement we have decided to move to prepaid cell phones. The cost per month is going to be far lower and we can certainly use that money to dig out of debt.
The problem is that we signed a two year contract about a year ago. There is a hefty early termination fee (either $175 or $350, we’re not sure yet). Do you know of any ways of getting around such crazy fees?
You have a couple options, at least. If you have clear examples of service that fall short of what was promised in your contract, you can be a squeaky wheel and raise the issue, requesting to be released from your contract. You can try to give your contract to someone else using a service like CellPlanDepot.
If those options don’t work for you, I would suggest just trimming your services down to the bare minimum you can have under that contract and wait it out.
Early termination fees are certainly one of the revenue streams that cellular providers rely on to make money for their company. They’re never going to make it easy to get out of that fee.
Q3: Homemade putty and playdough
I often think back to the many years I spend in the preschool setting, first as a teacher then as an administrator. I cannot imagine how many batches of play-dough I made during those 17 years, but it was time well spent!
One hint I have for you to make it last even longer is one that served us well. When children in a classroom are playing with play-dough it does tend to dry out a bit faster than batches at home, so I would take the those batches and add two things, warm water first and a bit more vegetable oil second, kneading each in to the desired consistency.
Another “cooking project” toy that we made was Silly Putty……. the recipe is even simpler than play-dough! Equal parts liquid starch and Elmer type white glue mixed together. If you want color it needs to go into the starch before adding the glue.
Linda is expounding on the playdough recipe that’s been shared a couple times recently on The Simple Dollar: 2 cups flour, 2 cups warm water, 1 cup salt, 2 tablespoons vegetable oil, and 1 tablespoon cream of tartar.
I’ve experimented with using more oil to keep the dough moist, but it’s something you can easily overdo, resulting in an oily clump of dough. A preschool teacher in another email mentioned a technique for saving slightly dry dough by adding two teaspoons of warm water and a teaspoon of the oil, just as you mentioned, and kneading it in.
The Silly Putty recipe works really well, too. The thing I like about these recipes is that they’re non-toxic, which means if my youngest child accidentally eats a little bit (as one year olds sometimes do), I know exactly what’s in it and I know it won’t harm him.
Q4: International travel for wedding
My sister moved to Turkey a few years ago, and now she’s getting married! She and her fiancee came home to visit my family in Phoenix and they actually got married at the courthouse here, so they’re technically already married. I brought the whole family (wife and 3 children) and I assumed that our presence at the civil service here in Phoenix would mean it would be OK if I didn’t go to their other wedding in Turkey.
I recently got an email from my sister letting me know that she expects me to be at the Turkey wedding in September. I gave her a few dates that would make it easiest for me to attend, but she chose another date (the day after my wife’s 40th birthday).
The way I see it, I have a few choices:
1. Not go, and deal with her being upset
2. Go alone, leaving the rest of the family at home. My wife let me know that this option will make her upset
3. Bring the whole family (our youngest is 18 months), which won’t upset anyone but might be very stressful, and will definitely blow our vacation budget for years.
Do you think it’s reasonable for me to not attend? Are there other options I hadn’t thought of? What would you do?
My honest suggestion would be to sit down with your wife, lay out the pros and cons of each option, and get her input on this decision.
As you’ve mentioned, there are clear pros and cons with each option. However, given the financial impact of the decision (especially considering the third option) and how that will impact future family plans, you should really discuss the options with your wife.
I can’t really advise you on the family dynamics of this, because each family is different, but in my situation, I would consider it more important to make sure my wife was fully on board with the plan than angering a sibling because I couldn’t travel halfway around the world.
Aaron writes in with a similar issue.
Q5: Making everyone happy
Often, it seems like a lot of my money is spent keeping everyone else in my life happy. I’ll drive my wife and children to different places. My money is spent on things I don’t want. The other night, when I was working late on a project, my wife just took the kids out to eat “because Dad wasn’t home.”
This seems like a lose-lose situation because I either lose money all the time or get into a constant war with my family. Any suggestions?
It sounds like you’re letting others entirely make the decisions with regards to your time and your money. That’s a mistake. While it is always a good idea to consider all of the stakeholders, you are absolutely one of the major stakeholders here and you’re being overlooked.
I suspect that the initial steps of this are going to be hard, because there seems to be a pattern that exists where you are relied on to give up your time and money with little input. I would suggest starting to change the tide by making lots of suggestions in those situations. Suggest other buying practices and other transportation methods.
If your spouse balks, sit down with her and with the numbers and discuss how these things are unsustainable. Over the long run, this isn’t going to work, after all.
Q6: Basic 401(k) and Roth issue
I am currently contributing 25% of my income to my 401K. As I just moved from oversea to US in late 2009, my contribution up till now is only $26,000. My company has NYLife manage our retirement plan and they invest my money in Black rock path 2045 on my behalf. What is the difference between 401K and ROTH IRA and what is the best advice for me if I need to steer my money in another way in case I opt to go my way? Appreciate if you could me some detailed advices on this as I am not that familiar with the US financial system.
First of all, you’re doing a great job investing 25% of your income for retirement. That is a great decision and it’s one that will set you up wonderfully for retirement in the future.
There are several differences between a Roth IRA and a 401(k); I’ll summarize the big ones for you. A 401(k) plan is usually run by your employer, while you usually have to set up a Roth IRA for yourself through an investment house (like Vanguard or Fidelity – it’s pretty easy to sign up once you decide to do it).
With a 401(k) plan, the money is taken directly out of your paycheck before taxes, meaning you only pay income tax on the portion of your paycheck that’s left after the 401(k) money is taken out. With a Roth IRA, you use money out of your take-home paycheck, which means that today, you’ll pay more in taxes if you put $5,000 in a Roth than if you put $5,000 in a 401(k).
However, when you go to withdraw the money, the situation is different. With a 401(k), you’ll have to pay income tax on the money you withdraw in retirement. With a Roth IRA, if you’re of retirement age, you can take the money out of the account tax-free, including any investment gains you’ve earned.
The general advice given is to put money into your 401(k) up to the top of your employer match. Many employers offer some sort of matching program for their employee’s 401(k) plans – I’m not sure if yours does or not. Anyway, once you’ve contributed enough to get all of an employer match, the usual suggestion is to max out your Roth IRA contributions, since you have more investment freedom with a Roth IRA and the tax benefits are usually deemed to be better. If you still want to contribute more, put the rest into your 401(k).
My back of the envelope math says that you’re earning around $50,000 a year, so you should be fine with regards to the income caps for a Roth IRA (high wage earners can’t contribute to a Roth).
Monique has a second question.
Q7: Emergency fund for family
What do you suggest as a good emergency fund these days for a family of 4, a couple and 2 kids? We have an emergency fund of 20K, we have just bought a house of 200K and still owe 44K. We do not have any credit card debt, car payment or student loans to worry about and home mortgage is the only monthly due (apart from utility bills) that we have to take care of but still, we think it is painful to pay more than $3,300 as the annual bank interest. Do you think we should reduce our emergency to 10K-15K (which is approx. 4-6 months of our expenses) and therefore save a bit more on our annual interest?
You’ll hear opinions on this topic all over the place, my friend.
My feeling is that, in your financial situation, it’s good to have two months of living expenses per family member in savings. In your case, that would be eight months of living expenses.
Many people feel that amount is excessive. I fully admit to being on the conservative side with such things, perhaps because I’ve witnessed many families struggle mightily after an unexpected crisis.
If you have a clear plan in place in the event of a severe loss in income or the passing of one of your family members (due to insurance or other means), you’re probably safe to cut things back a bit to the level you discuss above.
Q8: Alleviating stress
The past month or so has been really stressful at work. Over the last week, I’ve found myself sick to my stomach pretty much all the time, rocking back and forth in my chair, biting my nails and it’s all due to the stress I’m pretty sure.
How do you deal with stress? With the amount of writing you do and the deadlines you constantly have, I would imagine that dealing with stress is something you handle all the time.
I simply find things to do to relieve my stress level that aren’t self-destructive.
Often, the best thing for me is just addressing the problem head-on. I feel less stressed if I have articles written for the future, for example. If you have a task completed early, get a head start on something else so that you don’t feel constantly swamped.
As for stress relief in the short term, working on my fiction writing is very cathartic, as is playing board games or reading a novel that pulls me into another world or another way of thinking. Meditation and/or prayer also works well for me.
Q9: Savings bonds and 529s
Since my children were born, each year on their birthday, my grandmother sends us a US Savings Bond (usually for $100 or $200 maturity value). Calculating their value today, I think they would cash out for about $500 total for each child. My question is whether there are any disadvantages or advantages to doing that and putting that money into a 529 plan. Would my grandmother be able to make contributions to the 529 plans going forward (either directly or indirectly)? Would there be any tax issues to consider (doubtful assuming we’re talking about $100 a year or so)? My main motivator for doing so is to have the college savings in a separate bucket that my wife and I would then start regularly contributing to as well, for convenience sake. I realize that we could do this without moving the savings bonds, but for some reason, it feels better to streamline the savings instead of having paper bonds sitting in a desk drawer (and I realize the US Treasury is no longer issuing those paper bonds, at least for this type – series EE) We do not currently have any college savings for the children, and they are 5 and 7.
We have held off on starting 529s because we had other financial priorities (emergency fund, paying down credit card and student loan debt, saving for retirement, etc.) but we’d like to start putting something aside, even if it’s only $50 a month or so now so we can take advantage of compound interest etc.
Cashing in savings bonds to fund a 529 is a tricky issue and there are reasons to go each way. This web page lays out the issues on both sides very clearly. For me, it would really come down to the interest rates that the bonds are getting right now. If it’s close or if you think you can get a better return in the 529, cash them in and move the money over.
Your grandmother can certainly contribute directly to their 529, but I’m always hesitant to look a gift horse in the mouth, particularly when it comes to small amounts like this. If I were you, I might mention the 529 to her and mention that other family members can contribute, but don’t push her to change what she’s doing.
You’re making the right move thinking about these issues now rather than later, and you’re making an even better move by starting to contribute to their education.
Q10: Big debt problems
I’m locked into some credit card debt, and I’m not sure what the best way to try to get out of it is. I’ll try to be as specific as possible. I owe almost $34,000 on 18 different cards, with interest rates ranging from 11-29%. I’m old enough to know better, but until recently I just really didn’t care.
Full Disclosure, I’ve always been terrible with money, and again until recently, I never cared about how it was going to work out. I just kind of went along, and if I had money in my account I was good. If I didn’t have any money in my account and I thought I needed it, or it was a “big” purchase I put it on a credit card. I was a sucker for every offer to finance it interest free for a year, but I never followed through on paying it off before the year was out.
I have had to start thinking about my future due to a few recent events. First, my girlfriend and her son recently moved in with me. Second, I will soon be forced to find a new living situation. Third, which I just recently woke up to, is that I’m tired of spending over ¾ of my monthly income paying credit card bills.
I have an SEP plan with about $25,000 in it, and I would like to use a portion of it to put a large dent in my credit card debt. I know that is not generally advised, but I’m not sure to how else to be able to do this quickly. I’m paying close to $1600 a month in credit card payments, much of it going strictly to interest.
Why do I want to do it quickly? Well the first two events I listed. My preoccupation with what I owe is really starting to affect me personally, which is putting a strain on my relationship, as well as putting unnecessary pressure on the two most important people in the world to me. The second thing, I currently have no housing costs. I live in a house that is owned by my father, which we remodeled together, specifically for the purpose of moving my girlfriend and her son into with me. Not paying rent is a gift from my father, for various reasons. The house is paid for, though, so he is not losing money.
Why will that be changing soon? My house is on the same lot as my father’s house. He bought the lot and the houses from his father, who built them originally. Since they were constructed, the city zoning laws have changed, and the structures on the lot are too close together to sell the houses individually, it must be sold as one property. My father is getting close to retirement and has the opportunity to build the house he always wanted for scratch. He will be starting in a month. Once we have his new house built he will be selling his house (and mine), and I will have to find a new place to live.
With the amount of money I’m paying out for credit cards every month, I really can’t afford any type of housing payment. I stopped using the credit cards over a year ago, so I’m not adding to the balances other than interest. If I didn’t have my housing situation, as well as the housing situation of two other people involved, I wouldn’t be considering this. I feel tremendous pressure to get something done now, and I really don’t have another way that I can think of to obtain a large sum of money.
I’m already assuming that you wouldn’t recommend doing this, but if I did, what kind of tax penalty am I looking at in total. I understand the 10 percent early withdrawal penalty, but what would I be likely to owe the IRS at tax time next year?
Usually, when money is taken out of a SEP IRA early, the person receiving the money is subject to a 10% tax penalty on top of the normal income tax burden for the money. There are several exceptions to that, but I don’t think you qualify for any of them.
Your actual federal tax burden from doing this, then, depends on your current income level. The more you make, the higher your tax bracket and the higher your tax burden from this move. For example, if you’re in the 25% tax bracket when you do this, you’ll be giving at least $8,750 of that money straight to Uncle Sam (that’s $6,250 for the 25% tax and $2,500 for the 10% early penalty) – and possibly more if it moves you up to a higher bracket .
Now, that does still leave you with $16,000 or so to put toward your debts, which may or may not be the right move, but it does put a major damper on your retirement savings. I wouldn’t recommend the move overall.
My suggestion to you would be to look for extra money in your current situation and throw every dime toward your debt. What possessions do you have that you don’t really use any more that could be sold for some value? Could you possibly get a second job that solely exists to help you get rid of your debts? These would be better options than cashing in your retirement, plus they will help with the stress because you’re actually taking action toward that goal.
Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.