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. Debt piled up – what’s next?
2. First steps for small business
3. Challenges of working from home
4. Inflation’s impact
5. Wills through LegalZoom
6. Piracy as frugality
7. Is stock market a scam?
8. Budgeting around bulk purchases
9. Spending compulsion
10. Unwanted gifts
One of the most powerful indicators I’ve seen in terms of figuring out one’s job responsibility is how much extra planning and effort they have to take on in order to carve out time for a vacation from that job.
Most jobs that earn a low income have very little planning for vacation. On the other hand, jobs with a significant income often require a ton of planning for personal time.
This has almost perfectly matched the jobs I’ve had in my life. The jobs where I made minimum wage required basically no planning at all for personal time. I had to tell my boss or fill out a form and that was basically it. Other jobs where I earned significantly more required a ton of planning ahead for time taken.
With greater income comes greater responsibility.
Q1: Debt piled up – what’s next?
We both went to college and graduate school and have student loan debt for both. We both have ok jobs. We were doing great until we got married, spent too much on the wedding/honeymoon then bought a house. The house has turned into a bit of a money pit with emergencies like the heater having to be replace and putting it on a card. We have about 25k in credit card debt in addition to our student loans and mortgage. Now we want to start a family but don’t feel like that is responsible now that we have all this debt. We have tried calling our credit cards to try to consolidate payments onto one card. None will agree to do so – we have one card that has a balance of 10k and 29% interest that they refuse to lower. We cannot balance transfer because no companies will give us a higher line of credit. We are just able to make all our payments every month. We have already cut back on some items and limited our budget to minimal spending (gas, groceries etc) Are student loan consolidations a good avenue to pursue? They are about a quarter of our monthly budget which is huge.
You are in a position where monthly cash flow is a significant problem. Debt consolidation might help, but it really depends on two things.
One, does it lower your monthly payment? If you consolidate several debts into one, is the monthly payment for that one debt lower than the combined payments of the other debts.
Two, does it lower your overall interest rate? You don’t want to consolidate your loans if you’re not getting a better interest rate out of the deal. If you’re not sure whether you’d be better off, just multiply the interest rate by the balance of each debt you’d want to consolidate and add the results together, then compare that result to multiplying the consolidated loan’s balance to that interest rate. Whichever number is lower is the better deal.
Consolidation can hit both of those things, but you may need to shop around to find the best deal.
Q2: First steps for small business
I’m a thirty three year old single female. I’ve been the manager of a large and popular bar for eight years and have basically been running the place from top to bottom for the last five. I would like to open my own place because I’d rather keep some of the profits of this work for myself. I don’t have a lot of money but I do have a lot of knowledge of how to make this work. Where do I start?
The first thing you should do is head down to your local library and check out some books on starting a small business, particularly any that focus on service businesses. I don’t have specific book recommendations for this aside from browsing through several and picking one that is clear enough for you to understand. As you’re reading those books, try to apply what you know about bar management to what you’re reading.
Once you’ve read through those, you’ll want to write a business plan that clearly explains how you intend to run this business. What will it cost? Have you done market research and have you clearly identified places where such a bar might succeed? What licenses will you need? What sort of business is this (LLC, etc.)? You need to have clear answers to these questions and many more. The books you’ve read should help you work through these questions. A business plan isn’t just something you make to show banks or investors. It’s ideally something that will help you really figure out all of the challenges of this business as you write it.
Once you have a good business plan (and, ideally, revised it a few times and had people help you revise it), you can start shopping for investors and for small business loans. Again, the books should help you with this process.
It’s a long road and it’s a much different road than just managing an established business, but if this is a step you’re wanting to take, this is the path you should follow.
Q3: Challenges of working from home
My husband and I are in our early 30s. After I completed Grad School, we both had good jobs in the New England area (we’re engineers). In early 2011, we accepted jobs we couldn’t refuse in the deep South. The past two years have been very beneficial for our careers and have allowed us to get GREAT jobs back in New England. Both my husband and I are used to working office jobs. When we move back to New England, I will be working a 8am-6pm job and my husband will be working from home.
We are ready to settle down and buy a house as soon as possible upon return, and we hope to start a family. We are in excellent financial standing (i.e. contributing 10% to our 401ks, have a 1 year safety net in savings, and will be able to put down 25% on a house).
What can we claim on taxes with my husband working from home? I’ve read that we have to figure out what percentage of our house is used for his work and then we can claim that percentage of our insurance and utilities. Can we claim equipment and tools he needs to purchase? Should be be keeping receipts for everything?
Secondly, I suspect each day when I leave for work, he will still be sleeping, and that when I return he’ll probably be done for the day. His job will be based more on deliverables than working 8-hr days. How do I not get mad at him? How much of the household duties should he be doing if he’s at home and working 4-hr days? For the past several years, I’ve been doing all of the cooking and the majority of the cleaning, is it fair to expect him to do more if his work days are shorter?
Yes, keep receipts for every purchase related to his work. If you use part of your home for work, make sure that a specific part is used only for work and know what the square footage of that area is along with the rest of your home. A good tax software package will help with this.
As for balancing work-life issues, you’re going to just have to figure that out as you go. It’s a hard adjustment and it’s one that still sometimes causes conflict with Sarah and myself. I suspect the time issue you mention isn’t going to work out exactly like you think it is from this angle. There are lots of challenges and hidden time traps that come from working at home, not the least of which is household tasks that the out-of-the-home spouse begins to expect from the stay-at-home spouse. There’s also a complete loss of office interactions and workplace camaraderie, which can be surprisingly hard to deal with. I consider it much easier psychologically to work in an office outside of the home, actually.
These issues really deserve their own full article (which I’ll write at some point), but I will say that you guys owe it to each other to talk through these issues and figure them out together. If you’re angry that he’s asleep when you get up for work, you need to express that clearly and figure out what’s going to work that makes everyone happy.
I think you should be aware of it, but I think it’s not very useful to obsess or stress about it.
It’s basically impossible to predict what will happen with inflation rates in the future. People constantly predict everything from hyperinflation to deflation, but we’ve mostly seen very low inflation over the past several years. What will we see in the next decade? No one actually knows. If I were to guess, I’d guess that we continue to have inflation at a rate somewhere close to the historical average, but that’s a guess – no more, no less.
Your best approach is to just seek the best possible return on your money regardless of inflation and to diversify that money into a number of different investments to protect yourself from volatility as you grow closer to the time to withdraw that money.
LegalZoom will work perfectly fine for setting up a simple will and most other straightforward legal documents. Most of these types of common tasks are really straightforward and a process like LegalZoom really works well for them.
This assumes you’re not doing anything too unusual, of course. If your will or living trust is going to be complex and go far beyond a direct assignment of elements of your estate, you may want to talk to a lawyer.
My experience with LegalZoom is that they mostly move you through a simple questionnaire for things like this and if you have plans that can’t easily be described in answers to those questions, a meeting with a lawyer is appropriate.
If you don’t want to spend money on media, enjoy the many mountains of public domain and free content already out there. It’s not like there’s nothing free to read or watch or listen to.
Someone who creates something should have the right to decide how it’s distributed to others. I’m much more likely to support people who are very open with the sharing of the content they create, but I respect that other people might make more restrictive decisions. It’s up to them because it’s their creative work.
There are a lot of creative works I’d love to enjoy and to own a copy of but I’m unwilling to pay the price for a copy of it in a form that’s maximally useful to me. That’s fine. There are plenty of other things to enjoy for now and maybe someday the price will come down.
If it’s something you just can’t live without, then that means the creators of that content have created something of value and deserve compensation for it. If the price is too high for you, then go without it.
Q7: Is stock market a scam?
My husband is convinced that retirement accounts, (like 401Ks, etc.) are “just a big scam.” He things that the stock market is just “a con” and that the only way that one person profits is at another person’s misfortune. He thinks that if he gains money in, say, a retirement account, someone else has to suffer (because a stock we own has gone up because another person’s has gone down.) He is very adamant in his viewpoint. What could I recommend that he read? Or do you know of any good podcasts? Anything that caters to his viewpoint (i.e. suspicious of the stock market) would be particularly good.
The stock market is just a giant flea market where people are constantly buying and selling items. On a day where there’s a lot of people buying a particular item, the price on that item will go up. Everyone selling it at a low price – say, $7 – will get sold out, leaving only the people willing to sell it at a higher price – say, $8. On that day, the closing price is $8. On another day, there might be more sellers than buyers, meaning that people only willing to sell at $8 won’t sell any. On that day, the closing price is $7.
Stocks go up when there are more people that want to buy them than people who want to sell them. As long as there are more buyers than sellers, the price will go up. As soon as that balance shifts, the price starts to go down. This is basically what goes on on the floor of a stock exchange.
A share of stock has value in that it represents a piece of the corporation that issues it and, quite often, corporations pay a little dividend each quarter to each shareholder. So, someone holding a share of that stock might get $0.50 every three months just for holding it on a certain date.
I don’t really see where “misfortune” comes into this. The price of one stock going up or down has very little impact on what the price of another stock is doing (there might be global events that affect both of them, of course).
I don’t know of any resources that address this particular perspective directly. I would start with a very elementary book on how the stock market works.
Q8: Budgeting around bulk purchases
My husband and I finally have a budget that we’re happy with, but now we’re struggling with a bit of a different issue that I hope you can help me with. We have a certain amount set aside each month for food and household items ($400, to be specific) and most months we come in just a little under that.
The problem is that I’ve really begun to see how much money bulk buying could save us over the long run, but if I buy a bunch of stuff in bulk right now, I essentially blow up our budget. How can I get into a pattern of buying bulk nonperishables while staying within our budget?
The challenge with bulk buying is the startup cost. Your initial bulk purchase is expensive and you don’t see any of the savings for a few months. It only appears when you find yourself not buying those items.
Your best approach would be to raise your monthly food/household budget for the next few months – to, say, $500. Use that extra money solely to afford items in bulk.
After a few months of this, you will have purchased bulk versions of most of the nonperishables that make sense to buy in bulk. At that point, you can easily reduce your monthly spending back down to $400 – and likely less than that – for good.
Q9: Spending compulsion
I have a wonderful boyfriend with a major spending problem. I am 29 years old and make 38k a year. He is 34 and makes 5x more then I do, He has about 40k in credit card debt, two mortgage payments, two car payments. He has a savings/401k/retirement plan. At the end of the day, we are both pretty much, leaving paycheck to paycheck. We both recently divorce. I have a daughter, he has no children.
I managed to pay off my car, credit cards, open a savings and provide fully for my daughter in the last year without receiving any financial support form my ex husband. Since, I started my new relationship I have been a financial mess. I am spending money on meals/trips/items I normally wouldn’t. I do it because I don’t want him to always pick up the bill. Even though I am only picking up 10% it is actually hurting my pocket. I have tried bringing this issue and his response is, “I work a lot, I need to splurge to keep sane” and/or “I don’t like talking about finances, that was an issue that I had with my ex wife, I make plenty of money to spend it how I would like”.
I really love him and actually see a future, but his spending compulsion is scaring me and affecting my finances. I don’t know how to help him and at this point my self as well. Can you please advise me?? Thank you.
You have an incompatibility here – a strong difference of opinion on a key marital issue.
Now, no two people are always on the same page about everything. It may be that this is simply an area where you disagree and you’ll come up with a compromise that works for the both of you so you can move forward. On the other hand, it may just be something that is big enough to prevent this from working.
Explain to him where you’re coming from and your feelings on the rampant spending. If his response doesn’t involve some sort of talk of compromise, then there’s a very deep relationship problem that’s either going to need some counseling or it’s going to need to end.
Q10: Unwanted gifts
Whenever my birthday comes along or Christmas comes along, my in-laws always buy me a nice gift, but it’s virtually always a gift that I have zero interest in. A great example: for my birthday this year they got me a set of really nice Nike golf clubs, but I have never gone golfing in my life and have basically no interest in ever going. Do I need to keep these gifts or should I sell them and get something out of them?
How does your spouse feel about this? That’s where you should start with this discussion.
Start by making it clear that you appreciate the gifts, but that they’re just almost always completely incompatible with what your interests are and what your life is like. What should you do with them? Present what you would like to do – sell them – but your spouse’s perspective is vital here since your spouse is the connection to your in-laws.
There may be family history or other issues going on here that you’re not privy to yet. I’ve been married for nearly a decade and I’m constantly learning new things about my in-laws and their family traditions and foibles.
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.