Reader Mailbag: Winter Blues

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. Helping a rock bottom friend
2. Moving around the world
3. Easing a tax burden
4. Financial wedding propriety
5. Small claims court question
6. Deeply worried about parents’ future
7. Credit report issues
8. Goals regardless of money
9. Haircuts
10. First time home buyer tips

The end of January and the month of February are usually a time filled with longing for me. I’m looking so forward to the start of spring that I can almost smell the new plant growth, hear the twitter of the birds, feel the warm sunlight on my skin, and taste the asparagus and mushrooms that I harvest.

It’s also during this period that I tend to get very productive and write a lot of posts in advance, so that I can take days off in the spring to hunt for mushrooms in the woods and plant the garden, as well as days off in the summer to enjoy time with my family.

Q1: Helping a rock bottom friend
My long time best friend, Jim, has been struggling with some repeating problems which he can’t seem to break out from. Jim regularly gets himself into heavy credit card debt and is often bailed out by his parents. His parents have not been the greatest example in this regard as they too have debt problems and have already declared bankruptcy. Jim seems to spend money in order to distract himself from other problems, and often spends student loan money as soon as it is released from the University he attends.

The second problem is school related. His mind seems set on becoming a doctor although he is struggling to keep up in school. He has already had to retake several of the required classes and continues to struggle with procrastination. His Professors are always willing to give him extra leeway and extensions on assignments. He talks about how he dreams of graduate school, but I don’t see the actions required of him to get there, and I worry about how he will be able to handle the next level when he is struggling to get past basic courses now.

Jim is my best friend, I don’t want to tell him he may need to explore other options because I’m the one he leans on for support and encouragement towards his goals. I’ve tried pointing him to resources such as this blog trying to get him to realize that he needs to snap out of this rut. I am so worried for his future if he’s not able to turn this around soon, but don’t know what to say or how to help him.
– Wes

The problem with situations like this one is that if you approach him with this, you’ve got some chance of triggering resentment and damaging the friendship. On the other hand, if you don’t tell him, you’ll sequester this feeling inside of you, and that won’t have a good result, either.

The best approach in situations like this is to simply pat the person on the back and tell them sincerely that you’re worried about them. Ask them if there’s anything you can do to help them make it to where they want to go. If they say no, back off.

This, at the very least, makes it clear that you care, and you can have a clear conscience that you gave it a shot. It also might just open the floodgates.

Q2: Moving around the world
My family and I live in Melbourne, Australia. There is my husband and I both aged in our 30’s, a son aged 4 and a daughter aged 2.

My husband has been on work trips to the USA a few times now; visiting San Diego, San Francisco and Austin. Since his last trip, he has decided we should move to the US, so he can take the next step in his career. While I would love the opportunity to move overseas, I am not sure this is a great idea. My husband likes to be challenged at work and becomes bored if there is not enough to keep him mentally stimulated.

We have no debt other than our mortgage. We owe $195K (all figures in AUD, and at the moment is almost on par with USD) and the house is worth about $290K – $300K. We would have to sell our house in order to afford the cost of immigrating. We also have $27K in a savings account, which is our emergency fund. I am the one who does the accounts, my husband is a spender in a BIG way. He was in debt when we got together (more than $10K) and he has also since then racked up his credit card to $3K, which I had to use most of our savings at the time to pay off. He likes his disposable income and does not really want to give it up…

He is currently on a good wage, approx $100K per annum plus 9% superannuation. If we were to move, the equivalent wage would be $70K – $90K USD, possibly up to $115K if we chose a major capital city (which we do not want to do). I am currently a SAHM, and I was not planning on going back to full time work until our little girl was in Primary (Elementary) School. I do have Business/Accounting qualifications which would help me I also think that we would nit be able to afford to buy the land we want and be able to
find a job if we did move.

We had planned on staying in our current house for another 3-5 years so we could continue to save and eventually have enough to buy a small acreage where we could have our own orchard, veggie patch, chickens etc and be more self sufficient.

My reservations on moving are that we would only be moving because we don’t like the current town we live in (there is not a lot to do here for teenagers and they are often destructive; smashing windows, burning the play equipment – all in all not a place we want our own children to grow up) and because my husband is bored at work (this is his third job in the 10 years we have been together, and this is his second position within his current company). I do not think moving half way around the world for these reasons are good ones. I also don’t think the amount of money we could get together is enough when moving so far away. I think a move like this would wipe out our dream of finally buying land and working it.

Am I being too negative? My husband believes it will all work out, but I am not comfortable with just going blindly forward not knowing as much as I can. We would only know one couple (if we moved to the same town as them), otherwise we would be completely on our own. We would not have a company helping us to move, we would have to pay for it all ourselves.

We have just found out that we have been accepted for the second round of the Green Card Lottery. This is $440 per person ($1760 for the four of us) to continue with the application. I don’t think we should take it any further, but my husband says we should spend the money to see if we can at least get in. It seems like a lot of money to spend when I don’t think I even want us to go.

So, do you think financially, we have enough to make such a major move? Should we spend the money on the green card application (knowing that if we do get it, it is only valid for us to enter the US in the year 2012, otherwise we have to re-apply)?
– Ellen

Financially, I think you’re reasonably ready to make the move. It’s not the finances of the move that worry me at all.

What worries me are statements like “He likes his disposable income and does not really want to give it up…” and “My husband likes to be challenged at work and becomes bored if there is not enough to keep him mentally stimulated.” Those two things are a mix that would make me nervous about making radical life moves. A person who becomes bored when the environment isn’t right at work doesn’t mix well with a person who “must” have disposable income. That’s a recipe for disaster down the road.

Basically, his spending habits demand a high-paying job, yet he gets bored at work (and thus his performance slips – anyone who is bored in the workplace isn’t performing up to their ability). In this economy, the latter signals job risks and the former signals huge financial problems in the event of a job loss.

I would be nervous about making this move. If I did do it, I would insist on having a very healthy emergency fund that doesn’t get touched to pay for the move.

Q3: Easing a tax burden
I’m 26 years old, work in advertising sales, and in 2011 will make anywhere from $320K – $360K (my overall compensation includes base, commission, and equity [my company was recently acquired]). I have roughly $120K in a savings account, and another $110K in a 401K and Rollover IRA. I own an investment property in Southern California and am going to buy a place to live in in my current city (top 2 most expensive in the US sadly).

Here’s where it gets tricky. I have a 2 year old son from a previous relationship (his mom and I were never married). I pay roughly $1300 a month in child support unofficially, but since we never married, have not received any tax breaks for having a kid.

Being in this bracket is daunting, and I’m looking at paying over $100K in taxes if I don’t improve my tax diversification strategy. I will max out my 401K this year and will most likely buy a home so that should help. I am also planning on putting at least $5K in my son’s 529. What else can I do, all things considered, to help ease the tax burden?
– Alvin

For starters, unless you are buying a very expensive home and putting most of the cost of it on a mortgage, buying a home won’t help much with the tax issue. To have a mortgage big enough to really provide tax assistance is a significant financial risk in itself.

Your best bet, honestly, is to start a business and sink a lot of that money into the business. This is the reason people often become silent partners in businesses – the business is a tax sink for them in the short term and ends up returning a lot to them further on down the road.

What that business is is up to you. I have a friend who owns a significant interest in a comic book shop and the only operations he’s involved with is that he occasionally goes in there and browses through the wares just as a nostalgia thing.

Q4: Financial wedding propriety
I recently accepted the invitation to be the Maid of Honor at a close friend’s wedding, which will take place in about a year. I am very excited about this, but on the financial side I am also very nervous. The wedding takes place in England (I live in California), so I know that I will already be spending a chunk of money on the plane ticket and lodging, which is ok because I have a Travel Account that I put money into monthly. I’m more concerned about the other expenses– My frugality matches my mediocre paycheck, so I live well within my means, so the idea of spending money on my bridesmaid dress, the Bachelorette Party, gifts to the bride and groom, and all the other unexpected expenses are not only outside of my budget but outside my personality!

My friend, the bride, makes significantly more that I do, and knows that I am on a tight budget. How should I approach the financial issue here? Would it be appropriate to ask her to pay for my dress, at least?
– Janine

I’d sit down with the bride and talk to her about what she wants or expects from the wedding. Ask her what you can do to make it great, with the obvious understanding that you don’t earn a lot of money.

In your situation, I’d make it clear that you’re willing to give your time above and beyond what might be expected but that financial concerns might be difficult.

I would actually be much more concerned about the cost of the lodging than the cost of the dress, as a dress can be resould to recoup some of the money. If the wedding is in England, isn’t there someone you can stay with? I would approach savings from this angle. This way, if there is a housing opportunity for you, go over there a few days early and spend all of that extra time doing what you can to make the wedding go off perfectly. That’s the best gift you could give them.

Q5: Small claims court question
Like many others, I constantly find myself in situations where I feel that I have wrongfully lost money– A dentist recently overcharged me for dental treatment ($800 over the agreed upon amount!) and refused to refund the money. A few months ago an auto parts company sold me a $500 part that turned out to be broken, and would not refund the money or exchange the part. A car rental company overcharged me by $450, and– you guessed it– refused to refund the money.

In cases like these, I’ve always written a letter to the company and filed a complaint with Better Business Bureau, but have rarely gained satisfactory results. And although I have avoided court (because I hate the reputation that Americans sue anyone who annoys them), I’ve decided that I can’t afford these kinds of mistakes and have decided to take matters to Small Claims Court.

My question is about your ethical stance on suing companies or individuals that you feel have wrongfully taken your money. At what point do you think it’s legitimate and/or ethical to sue?
– Jamie

It depends on the agreement between the buyer and the seller. Was there a written agreement between you and the dentist? Was there a written agreement between you and the rental agency? Was there a warranty on the car part, and did you have a dated receipt for the item?

If you have these things, then you are likely entitled to some compensation. If you do not, then, frankly, you didn’t protect yourself as a consumer.

If you have clear proof that a company violated a written agreement with you, then you’re justified in suing. Most lawsuits are missing one element or another of that statement, though – no clear proof or no written agreement.

Q6: Deeply worried about parents’ future
My problem is that when I look down the road at my parents’ financial situation, it is enough to cause an anxiety attack. In their mid-50s, they have over $100K in consumer debt. They make more than that annually, and their mortgage payment is less than $500 per month. Their cars are paid off, although barely running. They do have significant retirement savings and adequate life insurance, but I cannot imagine their spending habits changing. I believe that they could change their situation with drastic changes, but even after a series of wake up calls they haven’t done so, which means it probably will not happen. Several years in a row they have had to borrow money to pay their tax bill from my grandparents, who never made even 1/4 of what they make in a year, and whose financial independence was and is hard-won through frugality. I myself gave them some money when I was in college at a time when they needed a cash infusion.

My husband and I are very responsible with our money, but our income is around 1/3 of my parents’. At no point do I intend to bail them out. Their choices are theirs, and they need to be accountable for them, not to mention that we simply cannot afford to help them while pursuing our own goals of retirement savings, paying off my student loans, 529 contributions for our two children, etc. At the same time, I know that the day will come when they will not be able to borrow from my grandparents anymore and will seek us out as lenders. (My siblings are in even less of a position to help them than I am.) This, coupled with worries about what would happen if they encountered a genuine emergency or had a devastating illness haunts me. Efforts to have honest conversations about these issues with them are usually cut off before anything meaningful can be said. I love them, and I know I will have a hard time watching them struggle, which they eventually will be doing unless they themselves make changes. Do you have any thoughts about how to make this situation easier? As an aside, I owe them a lot in that they provided an extremely loving home and all my necessities growing up, but they did not help me pay for college or with a down payment, so I don’t think I will feel guilt about owing them anything when it comes to that.
– Katie

As I’ve said before in such situations, it comes down to the relationship between parent and child and the long-term expectations of that relationship. There is no cut-and-dried answer to how a child should handle the December of their parents’ years.

If this is how you feel, you need to be prepared to simply say to them that you do not have the money to give to them when they come calling. Make that statement and stick to it.

The only reason guilt comes into the picture here is because you’ve not adequately resolved the situation in your own mind. You’re still unsure, and no answer I can give can make you sure. Keep searching and figure out what you consider to be the best route.

Q7: Credit report issues
When I was in college, my mother issued me a credit card on one of her accounts to use in case of emergency. I rarely needed the card, and put no debt on it that I did not immediately repay to my mother. However, a few years later, my parents hit a very bumpy financial road. My mother lost her job, and my father had to downgrade to a lower salary. Their credit cards were mostly closed, including this account. However, there is now a very high balance on the card (around $15,000), as well as several months of non-payment, with non-payment still continuing today. Despite many calls to the credit card company, this card, debt, and problem continues to show up on one of my three credit reports (the other two agencies removed it after my mother made the request). I am now 25, married, with children, and the stain on my credit report continues to be a problem. Almost all our finances have to go in my husband’s name, without even me as a co-applicant, because our interest rates increase with my bad credit report. My parents are very close to filing bankruptcy, so I know that they cannot afford to pay off this debt right now. I’m worried that this will continue to have a negative impact on my financial future, and am trying to decide what to do about this. My husband and I are financially capable of paying off the card ourselves, but I worry that we will never see that money back, and I’m not sure that it’s worth $14,000 to clean up my credit report (or that my husband would be very happy about it). What do you think I should do?

– Mary

You need to continually harass that final reporting agency until the situation gets resolved. There’s really no other route that you have to follow at this point if the account is closed.

You can request that the holder of the closed account remove your name, but they have absolutely no reason to do so and it would make their own position worse to do so, so they’re very unlikely to make such a change.

Another option would be attempting to settle the debt by contacting them and discussing a smaller lump sum payment to make the debt go away.

If you cannot get your name removed and no one can afford to pay off the debt all at once (or settle it), the best thing that could happen with regards to your credit is that your parents never pay off this debt. Any payment to that account makes the debt current again, which means that the seven year “clock” that measures how long the debt will sit on your credit report restarts. From your perspective, your parents making a small payment on the account doesn’t help at all.

Q8: Goals regardless of money
What would be your primary goals if money were not an issue? If you had enough money in the bank to take care of your family for a long time, what would you do with your time?

– Erin

I would still write, but it wouldn’t be as focused and as often. I’d probably become a contributing writer on another blog or slow down the rate of The Simple Dollar, or I might start another lower-intensity site entirely.

I’d probably commit to some heavy level of volunteer work on a local basis. I’m not sure entirely what that would be since I’ve never actively considered such a situation. A degree in social work might help, considering I would be doing these things on a volunteer basis.

I’d fill my other hours with making sure my kids were in school and that they had a parent at home with them if they were ill or had other needs.

Q9: Haircuts
How often do you get your hair cut and why? I’m trying to find the right balance between appearances and frugality.

– Kevin

I cut my hair roughly every three months. I usually cut it very, very short, then just let it grow out evenly until it begins to itch the back of my neck, then I cut it again.

If I know I have something major coming up (like a wedding or something like that), I’ll pay someone to cut it prior to the event. Otherwise, I just use clippers and trim the whole thing down pretty evenly myself. It’s actually fairly simple to do with a mirror and a sink in front of you.

Of course, I do have the added advantage of working from home, which means I don’t need to keep up a perfectly coiffed salesman’s appearance.

Q10: First time home buyer tips
I have a question for you: If you could advise in regards to home buying, what should a first-time buyer know before buying a home? (Please tell me your must-know tips or books you recommend) I know you’ve done posts on this topic before, but with this economy, maybe your thoughts/ideas have changed.

– Adrianna

I could actually write a book on this topic, as the list of things that are worth knowing can go on and on.

I’ll simply state that I asked this very question of a lot of people and that I read a lot of books during the months leading up to our own home purchase and that, believe it or not, the best all-around helpful book for answering our questions was Home Buying for Dummies by Eric Tyson, supplemented by some of the recommended additional reading from that book.

It answered, in simple terms, pretty much every question we had, and in the areas where we wanted to know more, the book made it clear where to go. That’s pretty much all you can ask for a general topic like this.

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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