Reader Mailbag: The Lesson

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. Businesses and kids
2. Bill pay in advance
3. Cutting own hair?
4. Satellite radio solution?
5. Used sporting goods
6. Treasury Direct today?
7. Retaining childhood artwork
8. What are Roth and 401(k)?
9. Home refinance questions
10. Assessing debt

My seven year old son told me he was bored yesterday.

Now, the generic parent response would be to give him a chore, but all that would do is convince him to not tell me when he was bored in the future.

Instead, I took a different route. I spent about fifteen minutes going through all of his stuff. I asked him whether or not he’d beaten each of his DS games. I went through all of his Lego kits and asked if they were complete, and then I asked if they could be modded together into other structures. I pulled out his sled and pointed to the hill behind our house. I pulled out several board games that he could play with his sister. I pulled out about forty books that I thought he could read on his own.

Then, I told him if he was bored, it was because he wasn’t trying.

Needless to say, he found some stuff to do. Most of the time, boredom is a function of a mind that’s not looking at all of the possibilities. I can’t imagine being bored any more.

Q1: Businesses and kids
I am very concerned about my children’s future. As you well know the cost of getting a degree or buying a home is prohibitive at best!! So I am teaching my kids how to start a business, now while they are 10, 8 and 5. BUT I need some help with this! Are there any good books or just plain advice you can recommend? Any suggestions? We just need to pick one thing and work with it because it is a learning experience as well, and now is the time to make the mistakes not when they have children and realize they can’t possibly afford a house.

My daughter suggested baked goods. We can bake, and I have a family friend who owns a store that sells things kind of deli style. We could bake a batch of something and sell it there. That is the obvious thing to do, right?
– Roy

That’s a good starting business. If you’re considering going down that road, I suggest following this advice for starting a homemade baked goods business.

Even if the business doesn’t develop into a giant success, the idea that people can simply start their own businesses and don’t necessarily have to be employed by others is a valuable lesson to teach. It’s something I am proud that I can teach my own children basically every day with my own self-employment.

One vital part of this that I would encourage your kids to do is to write up a business plan together. A business plan is really an exercise in thinking through the specifics of the business you’re working on. Whatever business you come up with, they should be thinking about it in these terms. Here’s a great guide to writing a business plan that, although targeted to adults, makes it clear what a plan should entail. It’s something you can use to help your children think through the steps involved.

Q2: Bill pay in advance
One thing I learned when I set up automatic payments for some of my bills was that if the due date occurs on a weekend during some months of the year and the draft is not taken until Monday, the bill can be marked late and a late charge is assessed. I always have the bills paid about three days in advance of the due date so that this does not happen. You did mention that it should be paid at or near the due date, but I think readers need to know that they either have to check with the particular business or make sure it is at least clear of any weekend/Monday holiday problems. I also learned that if you do get dinged with a late charge, a simple call to them will get it waived and you can set up the payment date so that it won’t happen again.

– Jenny

I agree. If your bills have a certain due date, you’re probably better off setting a payment date on your online bill pay that’s a few days before it’s actually due.

Weekends can play havoc with bill due dates and the day that your payment is submitted. Holidays can make it even worse.

My suggestion is to set a regular date that’s at least three days earlier than your payment is actually due. So, if your mortgage is regularly due on the 20th, set your bill payment date to occur on the 17th at the latest.

Q3: Cutting own hair?
How on earth do you cut your own hair without it looking completely ridiculous?

– Henry

I usually cut it very, very short all over my head. For me, this looks fine for a good month.

Generally, I just use the second shortest clipper attachment and run it all over my head. Then, I take the shortest attachment and run it on the sides, then I take the fade attachment and run it all over the place along the edge between the two lengths.

Alternately, you can just use the shortest attachment everywhere.

I think if you want longer hair, you should either be more trained in hair cutting or have someone else to do it for you.

Q4: Satellite radio solution?
I have an older car but I can have six preset radio stations. I’ve found six stations that I like a lot, and when ads come on I switch to another station. This is also helpful when you go out of range of one or two stations.

– Amanda

One of the first things I do when I get a new car is set 6 FM stations and 6 AM stations on the car radio. I have almost all of them memorized – 90.1, for example, and 640. I have them prioritized, so that I listen to 1 by default, but if 1 is running something uninteresting or an ad, I just hit 2, then 3 if needed, then 4 if needed… you get the idea.

The only real use case I can see for satellite radio is if you’re traveling long distances a great deal. For the amount that I’m traveling, I just fill up an iPod with podcasts and music and I’m good to go.

I just don’t quite see what satellite radio provides that makes it worth another monthly bill.

Q5: Used sporting goods
Are used sporting goods stores a good deal? Every time I go in one, the equipment looks kind of beat up but the prices are still kind of high.

– Ollie

I think sporting good stores are a great deal if you’re looking for equipment to try out a new sport. I would not expect to get high-end equipment for an experienced player there.

For example, if my son is just getting into hockey, I would head to a used sporting goods store to equip him with the gear he needs.

On the other hand, if my son is playing high-level competitive hockey where he’s looking at professional play in the near future, I’d probably look elsewhere for gear.

Q6: Treasury Direct today?
What do you think about the investing in the TreasuryDirect now? Your 2008 article was excellent, but the coupon amounts are much less now and it’s a little confusing.

Even navigating the site has me somewhat confused.

I bought a 30, 60, and 90 bond (I think they were bonds). The 30 day $100 bond sold for $99.99 so obviously 1 cent on $100 for a 30 day investment.
– Nathan

The returns right now on treasury notes are not a good investment for the average buyer. Most of the time, you’re going to get better returns in a savings account.

So, why would someone buy a treasury note? For one, it’s rock solid – at least as rock solid as an investment in dollars can be. It’s more rock solid than a savings account.

There are times when the returns on treasuries is higher than it is right now, but at the moment, the returns really aren’t good.

Q7: Retaining childhood artwork
My children produce an absolute flood of art projects, both at school and at home. I feel guilty throwing any of it out. How do I decide what to keep and what to toss? My kids notice when I toss any of it, too, making it even harder.

– Carrie

We’ve simply had to become selective with what we save.

What we usually do is hang new pieces of art on the refrigerator, then rotate them out with new pieces as they’re produced. If one of the old pieces is particularly catching, we’ll save it – otherwise we simply get rid of it.

We try to save about one piece every two months or so from each child, showing off the best of their work. Honestly, we’re not going to look at it that many more times.

I have a few of their best pieces decorating my office right now as framed wall decorations.

Q8: What are Roth and 401(k)?
I see a lot of readers ask you questions about Roth IRA and 401k, and I was wondering if you would post a simple explanation of what they actually are. As an Australian reader I occasionally have to figure out what our equivalent would be to some USA-based things in your blog, but I’m a bit stumped on these terms.

– Shane

A 401(k) is a retirement plan typically run by a person’s employer. A person can contribute money to a 401(k) plan before income taxes are calculated, meaning that contributions to a 401(k) effectively reduce the amount of income taxes a person pays in the current year. However, withdrawals from a 401(k) in retirement are considered taxable income.

A Roth IRA is a retirement plan that individuals set up themselves with an investment house. A person contributes money to a Roth IRA out of their pocket, so it doesn’t help with their taxes in the current year. However, retirement-age withdrawals from a Roth IRA are tax-free, even including the investment growth.

There are more specific details for each plan, but that’s the basic shape of it.

Q9: Home refinance questions
Just got married, cash rolled the marriage, but because of that we picked up about 30k in student loans (6.8%) for my wife while she was finishing her masters degree (we previously had no debt except for $146,500 loan on our house, 15 year fixed at 4.5%).

We have a standing principal balance of about 122.3k on the house right now. Would it be worth it to refinance the house, take some of the equity that we’ve paid off on the house and use that to knock out about 22k of the 30k student loan debt, and knock out the 6~7k left on the loan in about 3~6 months?

Slightly harder to answer question relating to the above. When we refinance the house, should we go for a 30 year loan (which will still have a lower interest rate then our current 15 year), knock out what’s left of the student loan debt, then go back to making payments like it is a 15 year loan? Since in this economy, and with my wife not working yet, it would give our ‘3~6 months emergency fund’ a bit more wiggle room with about $530 minimum payments (+ real estate taxes into escrow) per month vs $1113 + taxes each month.
– Marcus

Given that the student loan interest is significantly higher than your mortgage interest and that student loan death sticks with you through almost everything that can happen in your life (I like to joke that student loan debt is collateralized… on your soul), I’d call the move you’re considering a good one.

As for your second question, the key usually is to stick below about 30% of your monthly income for a mortgage payment. If you get above that, then you’re running a pretty big risk.

So, if the 15 year loan generates a monthly payment that’s below 30% of your monthly income, I’d go with that. Otherwise, I’d go with the 30 year loan.

Q10: Assessing debt
When doing break even analysis on refinancing your loan, do you account for the interest you have already paid in your current loan? or do you compare actual interest you have yet to pay throughout the life of the loan to total interest in the new loan?

– Jim

I don’t pay any attention to the interest already paid. The question to ask yourself is what will minimize the money I spend going forward from here.

Remember, there are really two goals with refinancing. One is to minimize the amount you’re paying each month. The other is to minimize the total amount you’re going to have to pay between now and the end of the loan.

A good refinancing can accomplish both. The amount of interest you’ve already paid doesn’t affect either factor.

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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