Reader Mailbag: Travel

Did you know that ten hours of road travel with a four year old, a two year old, and a newborn is a really bad idea?

I have just signed a loan modification for my (large) mortgage. They fortunately gave me a starting payment at 2% for the first 5 years. I have been able to pay up ALL of my bills (no credit cards or outstanding debt) and have $2000.00 in savings. I would like to make my payment each month and add $1000.00 more against the principal as the mortgage is a large one. I would also open a Vanguard 500 with a $1000.00 per month savings goal and let this accrue towards paying off more of the principal in 5 – 6 years. Which of these – payning against the 2% interest rate and/or compounding of the money with Vanguard benefits my goal of keeping my finances safe while I own this house? Can you recommend a type of financial advisor who I could seek a session with for further info? I love your column and appreciate any help that you can send my way.
– Jill

It depends on what happens at the end of the period with the 2% interest. This sounds like some form of adjustable rate mortgage, so what happens at the end when you come to your first adjustment? If it adjusts to a very high percentage rate, then you’re going to be facing the costs of refinancing or dealing with a much higher rate.

If it does adjust to a very high rate, I would put aside some very liquid cash (in a savings account) to help pay for the refinancing you’ll have to do. If it doesn’t readjust too much, I’d just make the minimum payments on it.

If you have a five year savings goal, the Vanguard 500 is not a great place to put your money. The stock market is a good place to put your money if you’re looking at a very long term horizon (more than ten years), but if you do a short period, you have a good likelihood of not gaining a dime or even losing money. Short term mutual fund investing is akin to gambling. I would put it in savings instead if your horizon is five years. Buy some CDs at the highest rates you can get.

As for the need to hire a financial advisor, with the amounts you’re discussing here, you’re better off misfiring quite a bit with your investments and handling them yourself than paying high fees and commissions to have an advisor do the same thing. You can sign up for the accounts you need on your home computer in just half an hour.

We bought a 2010 Hyundai Elantra GLS (we get 26 mpg city/34 mpg highway just like the book says), and it came with 3 free months of XM radio. I love XM radio, but not enough to pay the normal (I think) price of $14/month or even the $10/month discounted price. However, a friend who bought a new car also got 3 free months of XM, and when he called to cancel after 3 months, he was offered the price of $5/month and took it. I think $5 a month is worth it; my husband does not. What are your thoughts? We have Netflix and think it’s worth it, but he’s the movie and TV freak; I’m the book freak and could go without TV or movies. I drive the car to and from work, and I’m currently listening to R&B and jazz stations I cannot get in our area. He loves country music (as do I), which you can get almost anywhere for free on the radio.
– Karen

$5 a month is a small amount and well within most people’s entertainment budget for the month. If you get significant entertainment value out of it, why not?

Do you have a good grip on how much you spend (and your husband spends) on entertainment expenses each month? Ideally, you should be spending roughly equal amounts on the things that you value. I would reasonably think that if he values what he gets from Netflix much more than you do and you value XM much more than he does, the costs of the two would roughly balance out.

In short, if you get lots of personal value from it and use it frequently, I think $5 a month is perfectly fine.

I’m not sure you’ve talked about this, but it’s about health. We spend a lot on high quality supplements and feel it’s worth it. I’m in my early 50s and she’s in her mid 60s, and we feel great (no prescription drugs). But how much is too much? I’ve started buying from vitacost.com (great flat shipping rate), but I’m not sure how much to budget for our health (outside of our insurance premiums). Now our strider elliptical exerciser is on its last legs, and I’m wondering what we should get to replace it.
– Timothy

This is more of a health-related question than a personal finance one. I’m under the belief that a daily multivitamin is fine (and perhaps a vitamin D supplement) and this idea is backed up by Harvard, but I think the most important things are eating a well-balanced diet, getting at least some exercise, getting adequate sleep, keeping your mind engaged, interacting with positive people, and keeping a positive frame of mind.

Once you get much beyond those things, the evidence starts becoming vague and you hear lots of claims and counter-claims about “megavitamins” and “super foods” and high intensity exercise and the like.

I think the real question is whether or not you genuinely use this stuff and whether you truly believe it improves your quality of life (whether it actually does or it’s a placebo effect doesn’t really matter). You could always do a trial run without them, sticking to a well-rounded diet and a simple multi-vitamin.

We are nearing retirement (8 years) and moved to our current home 1.5 years ago because of my husband’s job. It’s not where we’d like to live when we retire, however. We found a condo in the area we love, with a view of water. It needs cosmetic work, but we could do that over 8 years. We’d rent it to our son’s girlfriend, but she can only afford enough rent to meet our principal and interest payment now–probably more when she gets out of grad school next year. Our goal is to have the loan paid off in 8 years, which is doable. However, renting to her has its good points (she’d help with painting and the work, we’d remodel when she went away, we’d be helping a person we love like a daughter), but we’d be out about $5,000 every year while she’s living there. If we wait until retiring to buy a place in this area, I’m fairly sure we couldn’t afford to buy one outright even if we save the $5,000 each year, and I don’t want a mortgage when we retire. I also don’t want to have to buy a condo and fix it up after we retire (a turnkey condo in this area would definitely be beyond what I want to pay). We don’t know what makes sense financially. What do you think?
– Sheila

As much as you like the place, it sounds as though it’s financially out of your reach right now.

That’s just part of life. Not too long ago, I saw a notice in the newspaper about a large tract of mostly wooded land for sale about fifteen miles from where we lived. I drove out to look at it and it was perfect for what we want to do. We could (right now) swing enough of a down payment to buy the land and then also afford the payments on it.

But then we’d be walking a very scary financial tightrope and the domino effect if we fell off that tightrope would be awful. Plus, it would be very difficult for us to come up with the resources we would need to build there because we would be responsible for all of it, starting with just bare land with few services running out there.

So we passed, even though it was exactly what we wanted.

Part of financial success is knowing what you really can afford and what you really can’t and (more importantly) having the maturity and bearing to walk on by those things that don’t fit.

I stumbled upon one of your posts about a list of the top songs you’ve been listening to lately. You mentioned iTunes. I find it hard for me to break down and flat out purchase some singles or even the whole album as the costs and sharing ability on iPods are not really appealing to me. With that said, I do not regularly buy music from iTunes and I fear if I start with the one click shopping for songs, I will rack up an immense bill!

What is your stance of downloading illegally but is in most senses, free? How do you control your iTunes spending? Are there any deals, coupons, incentives or even benefits when purchasing songs from iTunes?
– Angie

Given the multitude of ways to listen to the music you want online for free (like Pandora, for example), I think that the need to pirate music files is pretty unnecessary. If you want the convenience of being able to listen to a particular song anywhere, then cough up the 99 cents for it.

If you’re happy to do without some of the convenience, then you can listen for free using services like Pandora.

If you just take it, the people who wrote the music get nothing for their efforts. The people who performed it get nothing for their efforts. The people who engineered it get nothing for their efforts. The people who found the music and delivered it get nothing for their efforts. At least with Pandora, they get some royalties out of it.

Sometimes, artists choose to give it away anyway. But that’s not a good reason to take what you like.

Yesterday, I received an e-mail offer from AT&T/Citi Bank. They say that I can transfer balances from other credit card accounts to my AT&T credit card account. I would not have to pay interest on the transferred money for approximately 18 months. The cost to me appears to be just 3% of the amount transferred.

It seems to be too good to be true. Do you know of any traps regarding deals like this?
– Bob

Such “zero balance transfer” offers are fairly common. They’re just an enticement to acquire a new customer.

The only “catch” is that, usually, if you haven’t paid off your balance transfer by the end of the period, you’re charged all of the interest on the entire amount for the entire period.

Read the fine print on the deal and don’t transfer more than you think you can pay off by the end of the deal.

I am a 37 year old man who owns 2 homes and lives essentially paycheck to paycheck even though I make around $210,000 per year. The problems began when the housing market went down the toilet and my wife became pregnant. We own a small 3 bedroom house and were living quite nicely even though the value of the house we were living in was falling rapidly. Once the baby came along my wife stopped working and we realized that our small 3 bedroom was not really big enough for us, but we could not sell it because it was over 100k upside down. We had some savings so we decided to buy another house and try to rent our smaller house until it could be sold at a later date. Of course, the rental market has also suffered and we are losing about $800 a month by renting our old house and now have a new mortgage which costs about $2700 a month. The bottom line is that even though we have severely cut back our expenses, we are living dangerously close to the edge right now. We have drained our savings accounts and we have about 20k in credit card debt, 2 newer cars with car payments, etc. Are there no options for people who make more than average but who are still saddled with a mortgage that is so upside down? In retrospect I see a lot of mistakes that we have made, but I’m kind of stuck with them and need to find a way out. Do you have any advice for a poor rich guy?
– Justin

Sell one of the houses. That’s pretty much your only option here. Two big mortgages are untenable (it looks like each of your mortgages are bigger than my single one!).

Decide which house you’re going to stick with and live in yourself. Then contact the mortgage holder on the other house and suggest short selling it to them. They may or may not budge (depending on how they view your local market right now).

If you can’t short sell, you can either try to string things along until you’re to the “break even” point on the house you want to sell or simply walk away, allow the foreclosure, and deal with awful credit and higher insurance rates for the next several years.

Do you have a basic rule of thumb regarding how much to pay towards loans vs. a an investment portfolio and/or retirement accounts? I could probably beat my 6% loan interest rate in the stock market so, if I have the extra money, should I make double/triple payments on my student loan debt or put the extra towards my portfolio? Assume I’ve already make a risk assessment in favor of investing and that I will maximally fund my IRA and 401k. Would I be better off clearing the debt and then investing full bore or do you think I would make more (on balance) if I started investing all my extra money now (with a longer term for growth) and just making minimum payments on my loans?
– Jeremy

“I could probably beat my 6% loan interest rate in the stock market” is a questionable statement. It’s basically gambling.

Over the last ten years, the S&P 500 has dropped an average of 0.71% per year. Yes, that includes two bear markets and only one bull market. But no one has a crystal ball to say which is which.

If you put $100,000 into the stock market ten years ago, you’d have $93,122.60 today. If you put $100,000 into paying down that mortgage ten years ago, you’d have $179,084.80 in saved interest and equity today.

Now, of course, you can also find ten year periods that beat that 6% annual return, but they’re far from a guarantee.

The problem is that the future can’t be predicted. Personally, right now, I’d take a guaranteed 6% any day of the week over a stock market investment.

I’ve been an avid reader for several years but have not seen any information about WHEN to start thinking about a replacement vehicle.

I currently own (i.e. No payments) a 7 year old car with 140,000 miles. It runs well but does have some minor issues. The car could run another 100,000 miles or it could it could die tomorrow. I need a reliable but I don’t want to buy just to ease my worries.

How did you make the decision to start looking?
– Chad

For us, a big part of the decision rested on how vital that vehicle was to our daily lives.

My wife needed a car for commuting, period. I had some need for a vehicle on weekdays, but the need was much lower.

Thus, we were quick to replace her car when it started having several minor issues. We took it to a local mechanic that we trusted and he more or less suggested we’d be better off getting rid of it than repairing it, so we did just that. She needed a vehicle to commute in, after all.

With my truck, we were in a similar situation, but we kept the truck for two more years after that point. I didn’t need it on a daily basis (though it was very useful). In fact, we kept driving it until, over the course of the last year we owned it, it only ran about 60% of the time thanks to several different issues.

It all comes down to how vital that vehicle is in your day-to-day life. What would happen if that car blew up? If it is a major crisis, then you need to replace it a bit sooner. If you could get around it, then it’s less of a crisis.

Anyway I’m writing because as I was in the shower this morning, I had an idea (most ideas happen in the shower, right?). I had read your article on how to make your own laundry detergent, and I intend to start doing this myself once I run out of my current bottle. But the thought occurred to me: Shouldn’t making one’s own body wash be a similar process? Wouldn’t that, too, be cheaper?

I searched your blog to see if such a post existed, and upon finding none, googled it. I found some recipes, but they seem low-yield and expensive in that they include essential oils that may cost a bit. You might say I could just use bar soap, but I prefer the use of a loofah as it helps exfoliate my acne-prone skin in the process. In an effort to save money, I’ve been buying my bodywash from the dollar store recently anyway.

Anyway if you could provide any insight into whether it is cheaper and realistic to make one’s own body wash, I’d appreciate it – I’m sure other readers might too!
– Melissa

Body wash is something that I’ve tried in various homemade versions, but I’ve yet to find a version I’m happy with that I think matches the stuff that we buy in bulk.

The only recipes I’ve found that work well at all start off with a liquid soap base anyway, so you don’t wind up saving very much at all. The other recipes that don’t cost much to make just don’t work very well.

If I come across something that works, I’ll unquestionably share it on The Simple Dollar.

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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