海角大神

In the last week, I鈥檝e received about ten emails from readers and marketers simply assuming that I鈥檝e already purchased an iPad.

While I can see how it might be useful for reading documents and things while I鈥檓 out and about, I certainly don鈥檛 feel like it鈥檚 worth hundreds and hundreds of dollars, at least for the types of uses I would have for it. I might someday buy a tablet, but it鈥檚 much more likely to be a or something similar, which hits a lot more of my needs (particularly in terms of notetaking, with an integrated stylus and a deeply integrated 鈥渏ournaling鈥� function).

If someone were to spring and buy me one as a gift, I鈥檇 certainly use it and play around with it a lot, but buying it for myself? I鈥檒l take a pass. I鈥檓 just not a member of the any more.

I am a single mom, and have been for about 18 months. I have a professional job, and all compensation totals about $80,000. (I鈥檓 currently looking at a job with more opportunity that may boost my income to $90,000 or even $95,000.) I live in Tampa, Florida, but in 2005 bought a house in Shaker Heights, Ohio (when I was married and living there). I am the sole owner of the house. It was purchased for $250,000 and I now owe $201,000 on the mortgage. My payments were just increased to $2330 a month. Homes in the area are selling for around $200-210,000.

My tenants are leaving the house in mid-April, and they are several months in arrears with me (owing me about $4400, none of which I expect to get because of their poor payment history). I will be listing the house on the market for $220,000 in the hopes of getting something around $210,000.

Without my mortgage payment, my income exceeds my revenue by about $1500. Paying the mortgage eats into my savings at about $900 a month.

I have begun the hardship process with the bank to proactively handle the time when I may not be able to pay, or more ideally, to get on their radar for accepting a potential short sale.

I am living very lean 鈥� cut cable and only use the $9 netflix and hulu on my internet service; I started a side business that gets me anywhere from $100 to $300 a month; I am frugal in every regard. I am getting very fatigued, however, with the constant frugality as it鈥檚 for the purpose of just paying my mortgage on a house I just want to sell. I find myself telling my mother that I can鈥檛 come visit because I have to put the money to the mortgage鈥攚ho wants to live like that?

I want to meet my obligations on this mortgage. My question for you is how low should I let my savings go in this instance, before potentially stopping payments? And fyi, the new homeowner support programs do not include rental properties.
- Emilie

First of all, it sounds like this is all a fairly short-term situation that will be resolved when you sell the house in Ohio. With that in mind, what I would do is set a 鈥渢arget date鈥� by which you intend to have the house sold and paid for and keep that date front and center in all that you do. It makes it easier to make very hard cuts when you see that date all the time 鈥� it gives you a very clear finish line and a big psychological boost.

As for depleting your savings, it really depends on how much you have in savings. I would be very wary of allowing the balance to go below a month鈥檚 worth of your personal living expenses. I think that this situation does qualify as an emergency, but emergencies can sometimes come in bunches.

The biggest reason I can see selling this house short is the costs associated with the sale. Given that you don鈥檛 live locally (thus, you鈥檙e likely having a local realtor sell it for you), you鈥檙e probably going to be paying some fees on the sale, up to about 6% or so. For perspective鈥檚 sake, 6% of $200K is $12K. From my perspective, that鈥檚 what you鈥檇 be avoiding by selling short and, depending on your situation, it might be worth it, because otherwise you wouldn鈥檛 really be holding on for any financial gain unless you extended the timeframe by quite a bit.

In other words, I think you鈥檙e handling things correctly right now and I would stick to that gameplan.

I鈥檓 very interested in reading more about your advice via your blog. However, in the meantime and to get help quickly, my husband I would like to meet with a budget counselor locally to help us work on our budgeting. We have a bit of credit card debt, and a car loan. Our problem is partially debt payoff, but we鈥檇 also like to have someone work with us on establishing, and sticking to, a realistic budget. Are there services providers like that who don鈥檛 want to sell you financial products? Our main concern is establishing and working with a monthly family budget. We are 49 and 50 and have 3 kids so we have had time to work on this on our own, but we fail every time. We need help from a counselor that is not interested in selling us financial products as their main goal.
- Susan

A financial planner will certainly help you with creating a budget that works for you, though usually their primary service revolves around investing advice.

The first thing you need to do is start contacting financial planners in your area. The first question you should ask is whether the advisor is fee-based or commission based. If the person is commission based, move on immediately.

Once you鈥檝e whittled down the pool, it wouldn鈥檛 hurt to meet with a few of them and see which one seems to 鈥渃lick鈥� with you. Quite often, success with things like this comes down to the personalities of the people involved 鈥� if you rub each other the wrong way, it won鈥檛 work.

Don鈥檛 settle for one that you don鈥檛 fully believe in, though, because in your situation, you鈥檙e going to need someone that understands you well. Without that, you won鈥檛 follow through.

I would like to do a better job of investing my 401K money. Can you recommend a book or website that can give me some basic investing information to start with? I am truly a novice and in the past have relied on others to advise me, but I would like to learn for myself and make these decisions independently.
- Kay

My favorite book on investing is (click through for my review of it). It鈥檚 information-rich, but it also doesn鈥檛 make any assumptions about the reader at all.

That鈥檚 really the best book I鈥檝e found in terms of a one-volume all-around investment book. I would visit your local library and check out a copy 鈥� most libraries have a copy of the book.

If you鈥檙e looking very specifically at 401(k) saving and don鈥檛 really care about anything else, might be a better fit. It鈥檚 not as well-rounded as the other books, but it does offer a ton of good information geared towards 401(k) plans.

I鈥檓 recently married. I was laid off in January and have been getting unemployment benefits, $1276 a month. My husband works and makes $1914 a month. Much of his salary has been eaten away by his student loan wage garnishment, 401k loan, and other deductions. Our take home pay is about $38,000 annual. We have about $5000 in our emergency fund. We haven鈥檛 had to dip into it since my layoff, but we also have not been putting anything in it since then. We have a $8300 car loan, at a 40 month, 4.8% interest. My husband has a $5000 student loan at 4%; we have been paying $50 a month since I lost my job. Then, he has a bigger student loan at $26,000, 2.5% interest. My husband鈥檚 wage garnishment goes towards that last loan, and $280 a month goes towards that. Additionally, he owes $2000 to two good friends of his, and I am really pressuring him to consider paying them back quickly, for the sake of their relationships. What kind of game plan can you suggest? I want to keep building our emergency fund (especially in this down economy), but it makes me sick every time I think about the interest we are paying on the principal each year.
- Fran

The first question I鈥檇 ask is whether you鈥檙e actively seeking work. I鈥檓 going to assume that you are and that finding some sort of job is just around the bend.

The big question is how much money you guys actually spend each month. How much goes out of your coffers each month? Is it $3,000? $5,000? The reason this is important is that you should have at least two months鈥� worth of living expenses (the amount going out) in your emergency fund.

Once you have that, start hammering the debts. I absolutely agree that the first thing you should pay off is the debts to your friends. Debts and friendships simply don鈥檛 mix very well and you need to eliminate that as fast as you can.

After that, I would spend the time to make up a real . Get your debts in order and knock them down.

My parents are in a situation where they want to pay off the mortgage as soon as possible. Reasoning aside, I鈥檇 like to lend them a substantial amount (and have been asked). It鈥檚 my duty to the people who raised me and who would never hesitate to help me if I really needed it; it鈥檚 mostly because of support and opportunity from them that I even have the cash now to spare. However, the amount is over the gift tax exemption. I am personally fine with a verbal agreement (to avoid formal paperwork and interest income) but don鈥檛 want to trip any legal wires. I see how, if $X goes into their account on one day (from me) and $X leaves the next day (mortgage payment), those are high dollar, questionable-looking transaction records, but what if I paid the mortgage lender directly so that it never hits their account? What if they repaid within the year so that it鈥檚 basically balanced by tax time?

Most articles I鈥檝e found on the internet talk about being willing to risk default. It may sound like famous last words, but I鈥檓 really not concerned. If we鈥檙e counting dollars, technically I still owe them for funding a few early years鈥� worth of Roth IRAs when I needed the income for living expenses. They also covered college tuition minus scholarships, and even though repayment was never an expectation, I wouldn鈥檛 object if they needed some of it back. It might delay my nebulous plans to buy a condo/house 鈥渋n a few years鈥�, but having a ton of actual student loans would have as well.
- Amy

If you鈥檙e not concerned about your parents defaulting on the loan, then set up a simple loan agreement with them. Write it up in as much detail as possible (you can ask a lawyer for help if you鈥檇 like, or use a template online), then have both of you sign it in the presence of a notary.

However, according to , you have to charge a fair market rate of interest on the loan. If you do not, you still have to pay taxes as though you did charge a fair market interest rate on the loan. If you don鈥檛 do that, the tax man will hit you.

Yes, Uncle Sam doesn鈥檛 really like people giving money to each other. He wants his share of the pie, too.

One of the things I have been doing is using coupons matched up with sales to stock up on products and food. At this point, I probably have enough food and other products in my house to last for a month without going shopping (except for a few perishibles). Sometimes, I鈥檓 good about skipping a week, but it seems that the lure of the 鈥済ood deal鈥� is hard to beat.

Also, I wonder at what point this behavior turns from being a savvy shopper to being a hoarder? I live by myself, and at times when I look up and see 10 boxes of cereal on top of my fridge or go in my bathroom and see 5 things of toothpaste, I wonder.
- Claudia

I don鈥檛 think there鈥檚 any problem with having five tubes of toothpaste in the closet if you bought a 鈥渟ix pack鈥� of toothpaste as a bulk buy.

What borders on compulsive buying is if you have five tubes of toothpaste in the closet, but can鈥檛 resist buying another six pack because it鈥檚 such a good deal.

Our philosophy usually is to take inventory of our supplies of things like toothpaste once a month. If we鈥檙e down to our last tube or only have one tube in the closet, we add the item to our grocery list. Otherwise, we don鈥檛 buy it 鈥� we don鈥檛 even look.

In other words, we give our grocery list a lot of power. If it鈥檚 not on the list, we probably shouldn鈥檛 be buying it, either because we already have plenty or because we actually don鈥檛 need the item.

I am a teacher who does not work during the summer months. I am on a 10-month salary. Every summer without my paycheck has always hurt us. The intent this year was to put away a certain amount every month so money wouldn鈥檛 be so tight next summer. Unfortunately, things came up as they always do and the money was never put away. I was wondering if you had any advice on what we can do now to prepare for the loss of my income in July and August? We really don鈥檛 want to have to put expenses on a credit card as we have had to do in the past. We were thinking of getting rid of cable as one option, although the kids would be really angry.

The other question I have is do you have any advice on how to avoid this situation next year?
- Wendy

My wife is a teacher and I have a highly uneven income, so I鈥檓 pretty familiar with this problem.

The real key to making this work is to make the withdrawals automatic. Let鈥檚 say, for example, that your paychecks get deposited automatically on the 1st and the 16th of each month. You should have two monthly automatic transfers set up, one on the 3rd and one on the 18th (or so) of each month. Those transfers should move an amount equal to about 15% of your take-home check into your savings account.

Once that鈥檚 in place, saving for the lean months is easy. Just don鈥檛 touch the savings account and live out of the checking account until July.

As for cutting back and making the kids angry, it鈥檚 April. The weather is beautiful outside. Turn off the television, disconnect the cable, and go out in the yard. Hit the park and throw the football around until the sun鈥檚 about to go down, then go home and collapse in a heap of good exhaustion from the fresh air and exercise.

I鈥檓 trying to live minimally, paying off a little less than $3000 in debt and have enough to live off of. I鈥檓 actually a little shocked by how much money I have left over, I thought I had more. I used to buy and cook for people all the time and was a little extravagant on my own spending, but I鈥檝e pared down and am now looking to see if this budget I鈥檝e set up looks reasonable. My take home pay is $1800 without overtime, and right now we鈥檙e on an overtime freeze. I do have a personal trainer that I know is a little needless to most people, but I had a gastric bypass less than six months ago, so it鈥檚 essential for me as he keeps me in line and has been a great asset to my weight loss (or is high on my priority list). The following is my monthly expenditures. My credit card balances are less than $1000 together, and I also owe about $2000 from taxes when I was young and stupid in 2004.

Housing: $450
Car Insurance: $82
Cable: $15
Electric: $50
Gym: $22
Personal Trainer: $200
Taxes: $150
Credit Cards: $120
Cell Phone: $50
Savings: $350
Food: $100
Gas: $160
Discretionary: $50

My credit cards have an average of 20% APR (even though I鈥檝e never missed a payment) and I鈥檓 paying just barely more than the minimum balance. My taxes are also killing me in interest. I know you (and everyone reading this) is screaming, 鈥淒rop the trainer,鈥� but he鈥檚 giving me a REALLY good deal, only $25 a session, and like I said, it鈥檚 REALLY high on my priorities. The credit card companies refuse to lower my interest rates, and I don鈥檛 have the resources to pay off the credit cards in full to cancel them.

Do you have any comments or words of wisdom, or does this look like I鈥檓 on track?
- Stephanie

It looks like you鈥檙e on track, for the most part. I can pretty safely assume from this that keeping in shape is pretty much your primary value in your life for the moment, so I think the $22 gym expense and the $200 trainer expense, while pretty large, is reasonable.

Aside from that, your budget looks really good to me. I don鈥檛 know what else you could really change. If you find that you鈥檙e having trouble keeping within the discretionary money, don鈥檛 be afraid to adjust it a bit and make the monthly discretionary $100 and cut the savings accordingly.

After all, one of the biggest reasons people get frustrated and stop budgeting is that the budget is too constraining. They turn the perfect into the enemy of the good and just fall back to bad habits.

My husband and I share an account with an internet bank in Germany. His salary goes into this account every month. We get a credit card and a debit card directly linked to this account. This means when we pay using the debit card (DC) it gets directly withdrawn from our account and when we pay using the credit card (CC) it gets withdrawn from the account once a month.

Problem:
I have no overview of the account. We see a daily balance and we get a monthly statement but because the CC debt goes off automatically and everything is deducted on different days, there is no real amount I can say, 鈥淎h-ha! This is my debt,鈥� because everything revolves all the time. I have a list of our monthly/ quarterly/ annual costs that go off directly from the account but there is no 鈥渕onthly CC balance鈥� to pay off. That that throws me off completely, because I feel like I don鈥檛 know where we鈥檙e standing.

I have tried setting up 鈥渋maginary accounts鈥� in Excel but I don鈥檛 trust my own memory/ notes because I feel like I鈥檓 always forgetting to key in something or another. We have tried zeroing the account with our savings but because of the lack of an overview we keep slipping back into red, since we think we can afford X/ Y/ Z when there is actually another payment coming up and we didn鈥檛 factor it into our calculations.

Right now what does work to keep our finances more or less in check are the following:
1. Only 1 person handles the finances (me).
2. We use exclusively the envelope system with CC use only for internet purchases (seldom, 4-5 times per year).
3. We only tank up/ do groceries once a week with cash from envelope system.

I think it鈥檚 a mental barrier but it鈥檚 really hindering our debt pay-off/ road to financial success, without an end goal in sight, because we鈥檝e been revolving in minus for 3 years now. Do you have any tips for us?

My ideas:
a) Calculate monthly costs that are directly deducted and immediately transfer whatever is leftover from salary into a separate account. Whatever is in minus = debt.
b) From the 2nd account, take the money out for the envelope system for expenditure.
c) Whatever is leftover from 2nd account at the end of the month split into emergency fund/ savings and 1st account (to pay off debt).

What do you think? Thanks for your help in advance if you do decide to answer my question!
- Zhenlin

My first reaction is that your bank is doing something dodgy. You should be able to see your individual transactions when you log on to your online bank. If you have no way at all of getting transaction statements from the bank, how do you know they鈥檙e not up to chicanery with your account?

If you truly cannot get such statements from them, I would change banks. That sort of behavior is the poorest kind of customer service.

I would start this by contacting their customer service and finding out about getting proper statements that detail each transaction into our out of the account.

I have a 1993 Toyota Corolla which is coming up on 190K miles. It is getting to the point where the car is costing me more to keep than it is worth (both financially and time wise). In Nov 2009 I spent $800 on repairs, in Jan 2010, $400, and today I spent another $400. I am currently saving $200/month for a new car and putting $200/month in an 鈥渆mergency鈥� savings account. The problem is, every time the car breaks down, the money spent to fix it comes from the emergency fund. After today my emergency fund will be at about $300 (I just graduated from school and started a FT job, this is why it was so low in the first place).

Ideally, the Corolla would last me through the fall (repair-free) and I would have a decent size downpayment to put on a new car (I would like a 2011 Scion tC), but at this rate it doesn鈥檛 look like that is going to happen. What would you suggest I do in this situation?

Just to give you some background on my current financial picture, I just started a FT job in Jan making $45K a year. I have three credit cards. The only one I use is a Chase BP which I pay in full every month. I have a Chase card which has a balance of $4500 and a 23% interest rate. I pay $250/month on this card and it should be completely paid off in about 32 months. I have another CC, which is a Bank of America card that has a balance of $8800 and an interest rate of 3%. I pay the minimum balance on that and plan to roll over the money I use on the Chase card once that is paid off. I also have $37K of student loan debt and those payments ($250/month) will begin in July.
- Andre

If your car is that unreliable and causing that many unexpected expenses, then you need to be moving on to a different car sooner rather than later.

Your solution is easy: get another used car that鈥檚 newer than that 1993 Corolla. Shoot for something that鈥檚 more of a late model used 鈥� an 鈥�05 or an 鈥�06 for example. Then drive that one for several years until it begins to give you problems, but during those years, keep saving $100/200 a month for the next car.

What鈥檒l happen is you鈥檒l have a stable, decent car for the next few years. Then, in 2015 or so, when that car begins to give you problems, you鈥檒l have the cash on hand to write a check for your next one. Trust me, doing that feels so good that you鈥檒l never want to do anything else again when dealing with cars.

Got any questions? Email them to me or leave them in the comments and I鈥檒l 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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