Reader Mailbag: Writing Focus

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. Budgeting with bi-weekly paychecks
2. Gross or net income?
3. Investing in this economy
4. Car trade-in time?
5. Blogging workflow
6. Using money before pay cut
7. Sharebuilder IRA?
8. What is a dependent?
9. Major car decision
10. Long haul relationship

Most days, I spend some time working on a novel. It’s been an interesting experience.

The biggest thing I’ve found is that I can get sucked into novel writing for very, very long periods. With a post for The Simple Dollar, there’s a reasonable length I have to stop with. I generally try to keep the articles short enough so that they can be read in a quick burst.

With a novel, well… it’s a completely different story. I can get sucked in for hours and hours and the words just fall onto the page in a flood.

Q1: Budgeting with bi-weekly paychecks
My husband currently has a paycheck every 2 weeks, NOT bi-monthly, but every 2 calendar weeks. This is very frustrating when budgeting as each paycheck happens at a different time and different bills come out of each paycheck every 2 weeks (as the months aren’t arranged in 28 days, which would be nice). We also has extra income sporatically (he’s in the National Guard, so this is from training on the weekend and flying in the middle of the week) that we DO count on. Our main focus right now is paying off a loan that we used to pay for his truck (NOT an auto loan). Any help in getting us ahead in this would be awesome!

– Kelly

What I would do is have some bills come out of the first paycheck of each month and the rest of the bills come out of the second check each month. Pretend as though you only receive those 24 checks in a given year.

Now, you are going to receive a third check during two months out of the year. I would use those checks entirely for irregular bills – insurance premiums, property taxes, and the like.

I would probably pay all bills with a due date after the 15th out of the first check each month, then pay all bills with a due date before the 15th out of the second check each month. That way, you’re never running late on a bill.

Q2: Gross or net income?
When trying to determine how much of your income you save each month, do you look at your gross income or your net income?

– Angie

I would never look at net income for the purposes of saving for the future, especially when saving for retirement.

In retirement, you’re going to be responsible for your own taxes. Unless something unusual is going on, a large portion of your income is going to be taxable income, which means that a chunk of it is going to go to Uncle Sam. Your calculations should always reflect that.

THe easiest way to do it is to just keep all of your calculations based on gross income, and assume that tax rates are going to be nice and high when you retire. You’re always better off having more money in retirement than less, after all.

Q3: Investing in this economy
I was wondering if you had a moment to give some advice on what might be good investment ideas at at this state of economy. I know that may seem like a loaded question, but I’am really curious what you might be thinking.

– Marcus

The best place to invest in an uncertain economy is to invest in yourself. Education. Training. A small business. An emergency fund. Debt elimination. Medical visits.

If these bases are well covered and you still have money to invest, I’d probably put it in very stable blue chip companies that have been around for a long time and are incredibly stable. These companies aren’t going to make you rich, but they will steadily pay you a nice dividend over time and they won’t go bankrupt. I’d look at companies like those in the Dow Jones Industrial Average.

Another option is to just invest in a very broad-based index fund, like the Vanguard Total Stock Market Index. Choose one with very low fees. It also won’t earn you a mint, but it’ll be pretty stable and pay you a healthy dividend.

Q4: Car trade-in time?
I’ve worked hard (after some hard lessons) and I have $5,500 savings toward whatever car thing might be needed next. We also have about twice that in joint savings and our only debt is a home equity mortgage that we can now comfortably pay off. We are not exactly wealthy but our financial life is in good working order and we continue to save some each month.

I drive a 2003 Hyundai with 104,000 miles on it. Runs great. Will do the extensive tune-up soon but my question is about the paint job. The paint is burning off from sun exposure so there are more & more ugly bare metal “bald” patches, and I wonder if I should invest in a paint job.

I’ve heard horror stories about terrible paint jobs that only look good for a year or 2, and the best deal I could find from someone recommended to me was $2,000 to just repaint the center of the car from hood & top to hatchback, leaving the doors untouched & just buffing them since they are not where the bald patches are. Any recommendation I can get just comes from my oil change place or other business; I’m sure everyone just recommends each other because they know each other thru business or socially, and the recommendation wouldn’t guarantee a great job. (Speaking of guarantee, it looks to me like repaint shops only offer 1, 2 or maybe 3-year agarantees on the work, which is not encouraging. I happen to know a couple of antique Porsche collectors/aficionados, who tell me you get what you pay for & it’s a mistake to get any car repainted for cheap. As if $2,000 were cheap, anyway…)

Is it worth the $2K for a repaint or should I look at trading my car in for something with similar mileage that looks better? I hate to get rid of what has been an awesomely reliable car.

Part of me says I shouldn’t care how the car looks, but when I go to an interview I kind of cringe hoping the potential employer won’t see what I drive. I do some freelance jobs that involve meeting new people on a regular basis, and I’m not sure *I* would hire someone if they drove up in a really beat-up car, as in some way it is a reflection of the person’s taste or lifestyle or something. In some way my car is like showing up in dressed cheaply & shabbily for an interview.
– Jeff

For starters, if someone drove up to a job interview with me and was driving an older beat-up car, but they paired that with a good resume, I’d be more inclined to hire that person. Someone who drives such a car tells me that they understand the concept of value and bang for the buck. One of my good friends who made a much better salary than I drove a 20 year old car with rust spots and a bumper made out of a discarded 2″ by 4″.

Now, if you’re asking yourself whether the paint job is worth it or not on your car, the people you’re talking to are telling you the truth. You get what you pay for when it comes to a paint job on your car. The cheaper you get, the more likely it is to quickly wear off and put you back in the same situation you’re in.

The problem is that if you buy a really nice paint job on a ten year old car with mileage into the six figures, the paint job will probably far outlast the usable lifespan of the car. I wouldn’t go down that route.

If I were you and I decided that a car with a decent paint job was a requirement, I’d either trade it in now for a replacement or get a cheap paint job that would last for a couple of years, then trade it in at that later time.

Q5: Blogging workflow
I am constantly amazed at how much content you come up with for The Simple Dollar. How do you make that all happen? What does your daily workflow look like?

– Sean

I’m usually constantly brainstorming post ideas. I write them down in a pocket notebook no matter where I’m at. I let inspiration come from anywhere, and whenver I even have the vaguest idea, I jot it down.

The first thing I do is filter these ideas. 90% of them get discarded before I do any research or write a word. The ones that survive that first test get a basic outline and/or a bit of research on the topic for notes. I usually kill about 50% more of the potential posts at this point, and this takes up about half of my actual work time.

The rest of the time is spent turning these nascent post ideas into posts. I usually have the key ideas in place already, so it’s just a matter of transforming that into something readable.

I just do this over and over and over and over again.

Q6: Using money before pay cut
My husband and I are wrestling with the question of how to use our money wisely before I take a massive pay cut. Together, we currently bring in about $110,000 before taxes. However, I got accepted to a PhD program (yay!) with full funding (yay!) of about $14,000 a year (yeesh). So that will cut us down to about $74,000 a year. We have a mortgage that runs us $1700 a month, student loans (from his law school and my undergraduate studies) of about $70,000 at a low rate, and then all of our household expenses. We are already cutting back on going out to eat, which is our #1 vice. I’m planning on selling my car, which will free up about $3,000 in cash. We have two savings account with about $12,000 saved up, and $15,000 in investments.

I’ve been reading your blog for long enough that I know how to cut my budget down and live frugally. My student loans will be deferred and we’ll cut our car insurance and payments in half. What we really need to know is how to manage our money wisely for the next six months before I leave my job. I’ll be responsible for my books, and I’ll need to professionalize my wardrobe. We are finishing up all the necessary household repairs now while we can still afford it. What can we do to spend the money we do have wisely and still save up for any emergencies that come up while I am in school?
– Linda

Very few Ph.D. paths require what I would call a “professional” wardrobe. I know graduate students in a lot of fields and the vast majority of them dress extremely casually almost all of the time. Know the culture of your program before you buy a bunch of clothes.

Aside from that, I think you’re already making the right choices. You know where your biggest money leak is and you’re fixing it. You’re cutting enough from your monthly bills that I don’t think you’ll be in trouble, as your effective tax rate is also going to drop because of this life choice.

You’re doing the right things.

Q7: Sharebuilder IRA?
I currently have an online savings account through ING Direct, and they recently just sent me an e-mail offering an extra $50 if I open up a ShareBuilder IRA account and deposit $200 by March 1st. I’m a 22 year old student and have been wanting to start a Roth IRA account for several years to kickstart my retirement savings; this seems like a good way to start and a pretty good deal to me, since other Roth IRA accounts I’ve looked into opening require, like, several thousand dollars to start (that I don’t have the moment). I have an emergency savings of $1500, hope to pay off my student loans by the end of this year, and feel as though I could easily handle the $200 contribution. Do you know anymore about ShareBuilder accounts or have you heard any feedback from anyone regarding these accounts? I’m just wondering if I’m missing the small print and will end up finding out that I need to contribute several thousand dollars a year….

– Chris

While Sharebuilder does offer a nice low starting amount, Sharebuilder charges a $25 annual fee just for having the IRA and charges you $4 for each automatic transaction. Those fees are high enough that they just completely decimate your returns.

If I were you, I’d start saving that IRA money in a savings account. Set up an automatic savings plan to transfer, say, $25 a week into that account.

When you get to $1,000, open a Roth IRA at Vanguard (which is pretty much fee free) and buy into their STAR Fund, which has a minimum balance requirement of $1,000. Switch your automatic investments to that fund. Then, when you reach $3,000, transfer that money (and the automatic transfers) to whatever fund you think is best.

Q8: What is a dependent?
I have a question about taxes. Specifically, who can qualify as a dependent. I am a full time student and under the age of 24. My parents claim me as a dependent on their taxes. I was wondering if this is correct. My college is paid for through scholarships and student loans taken out in my name. Last year I worked a campus job and and an internship to cover my living expenses (apartment for a whole year, food, utilities). The IRS has a test to see if a person counts as a dependent, and one of the provisions is the dependent has to provide less than half of their own support. Can my parents still claim me even though I do not live at home (at any point during the year) and I pay my own bills? To be fair, they do pay for my insurance and cell phone bill, and own the car I drive.

– Shane

It’s hard to tell specifically from this example, but it’s likely that you are providing for more than half of your own support, in which case they cannot legally claim you as a dependent.

Usually in the case of college students, the IRS does not really bother to figure out dependency status as long as you’re not being claimed by both yourself and your parents, so I don’t think there’s a real problem here.

You need to sit down and have a chat with your parents about dependency status. Present them with the IRS test you’re mentioning here and talk about where to go from here. The best thing to do is probably for you to claim yourself in the future.

Q9: Major car decision
I drive a Honda CR-V. It’s six years old, 130,000 miles on it. I was just told by two different mechanics (one dealer, one independent) that my engine is dying a slow death (it’s burning oil at the rate of 2 quarts every 3,000 miles.) I owe approximately $8,000 on the car to my credit union. (Note for your readers, NEVER refinance credit card debt to a vehicle even if it gets you a lower interest rate, that is why I owe money on the car, and now I’m stuck with a messy situation.)

Here are my options:
1. Keep the car, keep making payments on it, and keep filling it up each month with an extra quart of oil on top of plus regular oil changes (I get oil changes every eight weeks as is, because I put a lot of mileage on my car, and the car starts malfunctioning when I hit 3,000 miles between oil changes.) According to those who looked at the car, my car could last years doing this, or it could start burning oil faster, which means a faster death. Crapshoot in terms of how long I can make it last this way.
2. Buy an engine. It would be used, cost around $3,900 for an engine with 95K miles on it and a 1-year warranty. Crapshoot in terms of whether the engine is a good engine or not and unknown on how long the rest of my car’s parts will work (i.e., What if I have to replace the transmission, etc.) Independent mechanic says he wouldn’t buy a used engine unless it had less than 60K miles on it and those are hard to come by. And I would have to finance this as I don’t have that kind of cash laying around (although if I started with Option 1, and then saved up for a year or two, I could get there with cash.)
3. Trade my car in to the dealership and get a used car (from the dealership) for around the same price as what I owe, which means my debt is paid off, and I have another car, with probably over 130K miles on it. Crapshoot in terms of what I would end up with – was it well maintained, am I going to have additional problems, with more than 100K miles on it, am I going to end up spending a ton of money on it anyway, etc?

Other considerations:
1. I LOVE my car. I know it seems so superficial, but I do love it. I bought it at one year old, and the intention was to drive it until it’s old and rusty and questionable to have out in public (and even then, keep it around to use as a “farm car” as I live on an acreage.) It’s 4 wheel drive, which has helped out numerous times in Iowa winters. We also use my car as the road trip car. From a functionality standpoint with my family, it would be a loss. Our other car is a 13-year-old two-door Accord which just doesn’t have the room we need.
2. I have a fair amount of consumer debt (I’ve reduced my debt by more than half in the last two years, but still have a ways to go.) Getting rid of this car would definitely help, but I don’t know if the risk is worth the potential zeroing out of this particular debt..
3. I can’t sell my car via private party without disclosing the engine issue so that option is out as I would get less for the car that way than what I owe on it. A dealership, in this case, will at least get me out with a zero at the end.

I’m leaning towards Option 1 and seeing how far it will get me. And basically deciding between Option 2 and 3 as the situation presents itself. Right now, the used car market is slim pickings. I don’t necessarily want to buy an engine either, but if I could fine one with less than 60K on it, I would be more comfortable with that option. By the way, the dealer told me their recommendation is to just keep up on the oil indefinitely. The Independent mechanic told me to keep it going until summer, then trade it in.

So I guess my question is, what would you recommended? Is there anything else I should be considering here?
– Ralph

I think you’ve covered pretty much everything you can do at this point. I don’t see any other options.

If I were you, I’d go for the first option. I’d keep putting oil in it and keep driving it for as long as I could.

I would also use this as a wake-up call to start getting serious about my finances. Start saving right now. Put away as much as you possibly can each month for the inevitable replacement of this car.

Q10: Long haul relationship
What relationship advice can you offer to young couples? What have you learned from your marriage to Sarah? (You seem to have a very strong relationship, based on what you write.)

I know you write about finances, but hey, divorce is expensive! How do you keep a relationship going for the long haul?
– Monika

My experience has been that a marriage works best if you put time into making it work. If you just assume your partner will always be there no matter how you act when you’re together, you’re probably going to be disappointed.

Both of us make some effort every single day to show the other that we care. It might be something small like taking care of a sink full of dirty dishes. It might be something like a note stuck inside someone’s bag. It might be the surprise of a wonderful dinner prepared without any prompting. It might just be holding hands for a moment and saying “I love you.” It might be a serious discussion about our shared future.

Every single day, we both try to do something. Often, we do multiple things. It’s a constant reminder that the other person cares.

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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