Reader Mailbag: The “Good Old Days”

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. Self-discipline or habits?
2. Handling job loss
3. Basic blogging questions
4. Graduate school options
5. Handling old medical debts
6. Renting a home in limbo
7. Possibly over-saving for retirement
8. Frightened about loan choices
9. Debt and expense questions
10. Retirement or home savings?

One comment I’ve received many times is that I somehow represent the idea that life was better in some sort of past “good old days.”

I don’t agree with that statement. What I do believe is that the past can be a great educator for the present, and we can certainly mine the past for things that work well. For example, face-to-face communities and neighborhoods were stronger in the past and I think it’s worth the effort to try to re-establish such communities and neighborhoods today. That’s why I suggest people talk to their neighbors and get to know them a little.

We don’t live in the past. We live in the modern day. That does not mean, however, that there weren’t valuable things we can pull from our heritage to use today. We don’t have to blow everything up and start over every generation.

Q1: Self-discipline or habits?
I’m an avid personal finance reader/thinker, and an avid runner, and lately I’ve been struggling with the question of whether my success has been due to self-discipline or motivation for goals. I know that several experts disagree on what prods us toward success. Some believe that self-discipline is key, while others believe it’s motivation/habit building and that self-discipline is a mysterious term that doesn’t really help us improve our lives. I’d like to know your thoughts on how you define both, and how they relate to personal finances and success.

– Michael

I think there’s some of both. Simply put, it takes discipline to establish a good habit, and it takes a good habit to change a person.

When you first started reading, it wasn’t easy. It took discipline to continually handle harder and harder material. When you first started running, it wasn’t easy, either. It took discipline to run farther and faster.

Eventually, though, running and reading became a habit. They became natural and normal parts of your life. That habit made you the runner/thinker you are today, but that habit was initially built by discipline.

Q2: Handling job loss
I was just fired today from a job that paid me $16.92/hr as a 911 operator. I live in NY state, northern, where the economy is severely depressed for anyone without a degree. My question is, if I get unemployment benefits should I try and go back to school here in NY and get a nursing degree? Or should I try moving out of state? I have nothing in savings & $438/mo car payment.

– Jenn

First, you have to ditch that car. Sell it if at all possible, then get an older car with more manageable payments. If this is a new purchase, that will be impossible, but if you’re nearing the end of the loan, you should be able to sell it.

After that, it depends on your unemployment benefits. Do they provide enough for you to make nursing school a reasonable reality? If you can afford it and you want to be a nurse, right now’s probably the best time to tackle it.

If I were you, I’d try to downgrade the car and decide whether nursing is a path you really want to follow. If it is and you can possibly swing it, go for it.

Q3: Basic blogging questions
I’ve been attempting to get going on a website/blog of some sort but I haven’t really found something that I’ve committed to. I’m still a student but I know I don’t want the job I get to produce 100% of my income.

Anyways, I’m thinking of starting a blog similar to yours, giving novel and interesting ways to save money and live better with less.

How long did it take you to start getting a lot of visitors and subscribers? How did you stay motivated through the beginning? How did you promote the blog?
– Charles

My first few months were fairly low-traffic affairs. I had a few popular posts that were linked on other sites, but it took some time to build a readership.

I stayed motivated in the early days because I wasn’t writing it for the money. I was writing it as a way to talk to my friends about personal finance without having an uncomfortable conversation with them. My motivation wasn’t income-based at the start of it.

I promoted the blog by trying to write posts that other sites would want to link to. A few times, I sent links to other blogs, but quite often, they linked without my intervention. For example, think of exactly what kind of post, say, a Lifehacker reader would want to read.

Q4: Graduate school options
I am separated with a pending divorce settlement still being negotiated, although we are close, two kids. I took a part-time job at the same time I started graduate school (public policy). I have been offered the graduate assistantship (free tuition and small stipend). The position would come with an opportunity to organize some conferences on policy issues near and dear to my heart. I will probably need to give up my part-time job as a clerk typist at the same university to take the assistantship.

I go round and round about whether I should accept it or not. Clearly, it would give me contacts in my field. But at a cost of earning less money (basically a wash because of free tuition that otherwise would be paid for with a student loan). But the clerk typist part-time job would continue indefinitely while I look for a full-time job and it pays pretty well for a part-time job. This part-time job plus a small pension and child support is enough for me and my kids to live on while I looked for a full-time job. (My divorce settlement will be enough to retire the student loan without paying any interest on it at all and there is no other debt and I have found a tiny but affordable house that we rent). The assistantship would end, of course, with my school year.

I am also undecided about attempting a PhD. The assistantship would definitely have an influence on getting another assistantship for a PhD, which would be a larger stipend. I do have a work history, but I was a stay at home Mom for 10 years, with only volunteer work during that period.

Maybe you have an opinion I am not considering?
– Sara

Your decision is all about whether you want this to be your long-term career field. If you do, this is an opportunity you need to jump on.

If you don’t, you should strongly consider moving on to another job in another career path.

I can’t tell you which one is right, but I will say that you’re in a position where you need to figure out some direction for the future. Don’t just idle in place or you’ll wake up in ten years wondering where all the opportunities went.

Q5: Handling old medical debts
I am currently trying to pay off all of my debt. I got a recent copy of my credit report, and it has a LOT of medical bills from quite a few years ago. Some are pretty small, but they all add up to quite a bit of money. According to Experian they are all due to stay on record until 2012 (for some), or 2013, 2014 (for some others). My question is: Do I try to pay them all back, which would hurt me financially right now, or wait until they come off my credit report? Also, what is your opinion on settlement offers? If I accept a settlement offer does that look just as bad on my credit report as not paying the bill at all?

– Dianna

If you’re looking solely at your credit report, your best bet is to leave the debts alone. If you pay them off now, it will bring the debts current. It will appear as a current paid-off debt on your credit report. While that’s better than an unpaid debt, it’s still not a really good thing and, to make matters worse, it’s current, which means the mess will remain on your credit report for longer.

However, what’s best for your credit report is usually not the most honest choice. That’s kind of sad, isn’t it?

You took out the debts, so you should make them right. That’s the moral way to handle it.

Q6: Renting a home in limbo
We recently vacationed in a home owned by a family member. We discovered while there that the family member no longer lives there and is no longer paying the mortgage or utilities for the home; they are apparently planning on filing for financial hardship in accordance with short-selling the house back to the mortgage holder.

I believe two mortgages total around $220,000. The house is currently on the market for $269,900. It has been lowered $20,000 since being placed on the market in January of this year. At the top of the market, homes in that subdivision ran over $400,000 but there are currently homes listed for under $200,000. There are nicer homes in the area available for less than the current asking price.

Our family has discussed the possibility of relocating to that same area. The house does not fit our needs perfectly – but close. As our household income fluctates, we anticipate that it may be difficult to secure a loan of $200,000 (our current home is in a much cheaper area to live 5 states away; it would likely sell for $130,000 and we would walk away with $10,000 for a downpayment). That area has very few rental options (for the size of home that our family of 7 requires).

What are the possibilities/ramifications for renting a home that is in limbo like this. We would be willing to pay market value in rent and it does sit empty currently – but we would want some sort of assurance that we wouldn’t be kicked out after just a few weeks/months. If we paid “rent” (or a portion of it) directly to the mortgage holder, would they hold off on taking action? We understand that no payments have been made on the mortgage since January of 2011 went the occupant moved out and listed the house.
– Brad

If you rent this home and the owner doesn’t make the payments, you’ll be evicted when the foreclosure happens. It’s that simple. I would not rent this house and move my family in until the home is on solid financial footing.

That’s not to say an arrangement isn’t out of the question. Is the owner of that home looking to sell it? I’m assuming they’d want to sell it. If you can work out an arrangement where you would own that house and then sell your current one (obviously involving both banks), it might be a good move for you.

However, I would not rent in this situation. It’s too shaky.

Q7: Possibly over-saving for retirement
Historically, I have saved 9-10% of my gross salary (not including company matching). Should I be figuring in matching? Effectively, if I put in 6% of my salary, my company makes up the other 4%, hitting 10%. Obviously, I can afford the 10% (so, actually 14% with matching) having done it for years, but would I be better served to invest the 4% “extra” I have been saving in mutual/index funds in a non-retirement account or perhaps save towards buying an investment property or the like — or to keep on contribuing it to my retirement account?

– Kate

I don’t think you can really “over-save” for retirement. All that will happen is that you’ll be able to retire a bit earlier or with a higher standard of living in retirement.

Now, that’s not to say you couldn’t redirect 4% of your savings to other goals if you have them. If your savings goals include things that you’ll want to do before retirement, you’ll probably want to invest outside of a retirement account.

If not, though, I’d use the tax advantages of retirement savings. The only change I’d suggest is to use some of your unmatched funds in a Roth IRA.

Q8: Frightened about loan choices
My husband and I thankfully don’t carry a lot of debt, due to some life insurance he received prior to our marriage we were able to pay off our car and we purchased our home in cash so we currently carry no mortgage. Lately, we have been discussing some updates that need to be done to our home (namely a new heater/air system and a new roof and some extra insulation) the cost for this is going to be about $13,000 we are also wanting to go ahead with IVF which at our current clinic is going to cost approximately $16,000. My husband contacted our bank and were told we had two loan options one is a line of credit loan for $30,000 – we would take all the money up front and the monthly payments are interest only for $125.00 then whatever we could apply to the principal a month. The other option is a cash out refinance loan, it’s a standard 30-year loan with a fixed interest rate and the payments would be $180.00 month. We are at a loss as to which option to pick, my husband is the only bread winner in our home and as it stands we have about $500 left over each month after paying our utilities and what not. Which do you feel would be a better option for our situation?

– Tara

The best option is whichever loan charges you the least amount of interest over the life of the loan. Which loan has the lowest interest rate? I ask this because if you make small overpayments on the first loan (which you’ll have to do if you want to get rid of it), it’s not terribly different than the second one.

Also, do both of the debts allow you to make extra payments without penalty? If one of them charges you for overpayment, I’d avoid that one.

With everything being exactly equal, I’d probably choose the more flexible one, mostly because you guys seem like the type of people who are diligent about eliminating debt. If that weren’t the case, I’d choose the other one.

Q9: Debt and expense questions
With my expenses I always take the monthly/ weekly option to pay for them as I never manage to build up enough cash to pay upfront. Do you always prepay a full year upfront instead of paying monthly? If I buy 20 personal training sessions/ a 1 year gym membership/ one year car insurance I save up to 20%, so it makes long term financial sense. Only that means for a few weeks I need to divert all of my earnings to paying for these upfront – and won’t be able to pay more than the minimum payments to service my debt. Also, can I ever get myself back to a neutral position – and then to a position where I have built up a house deposit? And how?!

– Sue

If it’s something that’s absolutely required, it makes sense to pay in advance to save money. An example of this is car insurance. If you can pay a year at a time and save 20%, do it.

Where it doesn’t make sense is with things like gym memberships. Yes, it might be cheaper to buy a bunch at once, but unless you have a very strong habit of going to the gym, most of it will be wasted.

Do not convince yourself that you will have a gym attendance habit in the future. It often doesn’t work. Buy a short membership and see what happens. If it turns out you do work out a lot, then you’ll only waste a bit of money, but if it doesn’t work out (as is often the case), you’ll save a ton.

Q10: Retirement or home savings?
I am a 32 year old RN in Chicago. I have $1500 left on my student loan. I am thrilled that I am projected to pay it off by the end of this October based on my personal accelerated plan of $325/ month. When I pay off my student loan, I will be coming into a $325 windfall per month. It’s like getting a raise! My question is: What should I do with the extra money? Should I save for a home? Or should I max out my Roth IRA contribution? Split the money half to home savings and half to Roth IRA? I don’t own a home yet but am hoping to make that happen in the next 2 to 3 years. I had some credit card debt in the past. I am happy that I have “seen the light” and am moving past my debt days. I really want to focus on being debt-free before making a major purchase such as a home. I’d like to benefit from the potential lower home prices in the coming years. However, I feel strongly about saving aggressively for retirement. Suggestions?

* No Credit Card Debt.
* Car Paid for in Full.
* Emergency Fund of 17K (hope to have about 20K by Oct) in ING Direct with 1% interest- I contribute $600-700/month.
* 401K with balance of 52K- I contribute 8% of my 75K salary, employer matches 3%.
* Roth IRA with balance of 3K- I contribute $100/month.
* Employer Sponsored Pension balance of 21K- my employer adds 4% of my salary, I contribute nothing.
* Renting in Chicago- my share of rent is $975/month with parking.

– Stephanie

Your 401(k) and Roth are in very good shape for your age. Given that, and given your desire to buy a house in the fairly near future, I would save for your house in the next few years.

There are a lot of reasons for this. First of all, people often don’t expect all of the extra costs of home ownership and home buying, from closing costs to basic home furnishings to the unexpected elements of ongoing maintenance. Second, a reduction in your home costs means a smaller mortgage, which means lower payments or the possibility of a 15 year mortgage, which helps with your total cost of living, which helps with retirement.

In your situation, I’d save for the house.

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.

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