海角大神

What鈥檚 inside? Here are the questions answered in today鈥檚 reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
GTD for stay-at-home moms
Loaning money to parents
Prepaying property taxes
Emergency fund or debt repayment
Starting a Roth IRA
Small business encouragement
Thinking ahead for college
Out of college, no job
Apprehensive about mortgage prepayment
CFPA thoughts

As I鈥檝e mentioned before, my wife and I have strongly considered moving to be closer to various family members. What keeps us from doing it? Friends. We have a very wonderful circle of people here and, frankly, neither one of us wants to leave them behind. It really is all about the people for us 鈥� we want to move to be near certain people, and we don鈥檛 want to move because we鈥檇 be far from other people.

I enjoyed your GTD review and am trying to implement it in my life. My problem as a stay-at-home mom is how to organize all the repetitive duties that end up taking up so much time that I can鈥檛 even get to look at my next steps action items.
Do you know of other stay-at-home people following GTD and how it works for them?
i.e. Do I have 鈥渃lean house鈥� as a project and then add 鈥渨ash dishes鈥� as a next step after every meal? I鈥檓 thinking it only makes sense to add special projects like cleaning out closets on project lists鈥�but then I still don鈥檛 know how to organize my day to get things done. It seems that the GTD book is more geared toward office life and not home life.
Any ideas?
- Megan

GTD really works when your life is (a) filled with lots of little things that you need to keep track of, (b) appointments, and (c) longer-term projects that can鈥檛 be finished in one sit-down session.

I can鈥檛 speak for a stay-at-home mom, but my life is loaded with these things, and GTD really helps with them. The 鈥渓ots of little things to keep track of鈥� is dealt with by writing everything down that comes to mind, putting them all (and any other items I get, like mail) in an inbox, and processing all of it once a day or so. The 鈥渁ppointments鈥� are handled with a calendar. The 鈥減rojects鈥� are handled by devoting a folder to each one, defining the steps I need to accomplish, and reviewing them regularly so that I鈥檓 always taking the next step on them.

I don鈥檛 use it for daily routines, though checklists can be helpful for that. The exception is if I鈥檓 trying to establish a new one, like practicing the piano or something like that.

It鈥檚 up to you, really, whether those things will help you 鈥� or help you enough to be worth the time.

Is it unethical to charge my parents interest on a loan? I鈥檓 22 and have *very* robust finances, while my parents have been both unlucky and made some poor choices (though they鈥檝e gotten better in the last few years). My dad recently suggested to me that instead of paying his credit card company interest (~20%, he thinks) on his balance (~$4000), I could lend them the money to pay it off in exchange for something like 10%. If it worked out we鈥檇 both be better off. This is money I can afford to lose, and would otherwise be sitting in a money market or bond index fund.

So my question, is it unethical to charge my parents interest, at least more than I鈥檇 earn otherwise? While 10% is much lower than their current payment, it鈥檚 much higher than I鈥檇 earn otherwise. If I鈥檓 willing to lend them the money at a lower rate, am I ethically obliged to? I鈥檇 value your thoughts.
- Mickey

It鈥檚 not unethical to do it. It鈥檚 just got a strong likelihood of damaging your relationship with your parents.

Think of it this way. You鈥檙e now going to have to enforce the regular repayments (likely to make them bristle). If they decide that they don鈥檛 need to repay you regularly, you鈥檙e going to bristle up. Neither one is going to be good for your relationship, particularly if the condition continues.

Now, imagine if they default. That鈥檚 going to strain the relationship for a very long time in both directions.

For me, it鈥檚 never worth it to loan money to people I care about. If I decide someone needs help, I鈥檒l gift them something.

I鈥檝e followed your blog closely but have not seen any info about getting a discount if we prepay property taxes. I read there is a 10% discount if we do this. Have you heard about this?
- Meena

I have never seen or heard of a discount for prepaying one鈥檚 property taxes. That鈥檚 not to say that there isn鈥檛 a municipality or state that offers such a discount.

Regardless, prepaying your property taxes is usually a good idea if you鈥檙e not saving ahead for them. That way, you鈥檙e not stuck with a huge surprise at the end of the year.

In our area, various payment plans are available without fees being charged on the monthly or quarterly plans. We use the monthly one and have it automatically deducted from our account.

I currently have a debt of $32k an overdraft charging around about 0.88% on my total balance. I have savings which are hard to get to 鈥� about $27k which i automatically pay $500/mth without fail.

I want to start saving for an emergency fund since between my hubby and myself I am the bread winner. However, I want to get rid of the debt as quickly as possible. Should I close and settle the overdraft using a loan which will charge me 5.5% per year or shud i just settle the debt using my savings?
- Aldie

I would settle most of the debt using your savings, retaining some of it for emergency fund use. I would probably retain two or three months鈥� worth of living expenses and put the rest towards reducing the debt.

Of course, once you鈥檝e done that, you should channel that $500/month temporarily towards the debt until it鈥檚 gone. Make that in addition to your normal payment, so if you have a payment of $100, pay $600.

Debt freedom is truly great for one big reason: it vastly increases your monthly cash flow, making it possible for you to make a lot of choices you would have never made otherwise.

I recently changed jobs to one with significantly higher pay. I had a small amount of money (around $1100) in a Roth 401(k) at my old job, with the bulk of my retirement savings in a standard 401(k). I鈥檓 in the process of rolling that over, but my new company does not offer a Roth 401(k) option. At the moment, I鈥檓 having the Roth portion sent directly to me, and I鈥檒l decide what to do with it when I get it.

I believe that this year will be the last year that I鈥檓 eligible, due to income limits, to participate in a Roth IRA. I don鈥檛 have any IRAs open currently. Do you think it would be worth opening one to deposit my Roth money, and then orphan it because I can鈥檛 contribute at all after this year? I鈥檝e also considered maxing it out for this year, which I could do without affecting my emergency fund.
- Luke

I would absolutely take advantage of this one year of Roth IRA eligibility. If you鈥檙e going to be earning that much in future years, having as much of your retirement as possible in a tax-free retirement vehicle will be nice come retirement time, because that money will reduce your tax bill later on.

If you can max it out this year without affecting your emergency fund, I鈥檇 absolutely do that.

You鈥檒l never wind up regretting having money socked away for retirement. You might, however, end up regretting not having enough socked away.

I wanted to solicit some advice from you directly. I鈥檝e been working in the real estate industry for a few years now (in the apartment leasing sector), and I really think I鈥檓 ready to start my own independent agency. I鈥檝e done extensive planning, market analysis, and budgeting for the whole endeavor, keeping my costs as low as I can while planning for real explosions in costs in the event of an early-onset catastrophe. After accounting for my own savings to contribute to the start-up costs (and leaving enough padding in my emergency fund), I still need to borrow about $10,000 to really launch. I have a family member from whom I can reliably borrow the money. My question is this: do you think it鈥檚 a smart idea to be borrowing money for a start-up company in this economic climate? Fortunately everyone needs an apartment (even moreso when the house market is bad), and between my experience and my plan, I鈥檓 pretty confident than this will be a success, but I don鈥檛 want to be missing some obvious consideration that I had overlooked. I know the Simple Dollar philosophy is debt-averse, but the alternative is to wait on this for another year or more to accumulate savings, and doing that could mean missing a current window of opportunity (Illinois real estate agency regulations will be cranked up early next year). So what is your take on starting up a small business? Is it OK to do in a recession?
- Chris

I don鈥檛 see any problem with launching right now. Many, many successful businesses are launched during economic downturns and take advantage of the full elevator ride of a rebounding economy.

I鈥檇 be less sure about borrowing that $10,000 from a family member. Borrowing money means you eventually have to repay it, and if you have difficulty meeting their expectations on repayment, it can create a family problem that you just don鈥檛 want to have floating around.

Could you sell this person a small portion of the business instead with some sort of buyout arrangement at a future date? Or could you borrow the money from another source?

I am a high school student with no debt. In the preceding years when I go to college, I need a way to pay for my education other than my job, not that I am lazy, but that I cannot pay 4 years of school even with tons of financial aid. Scholarships, even though they are an option, will not pay for enough, seeing as I am not from a minority background, nor any other real attributes that set me apart from the general student population, and where I live, the only jobs available to me are minimum wage. In the long run of my high school career, I may only be able to make a couple thousand dollars to put in a college savings account. I My mother and I live on a very set income, barely enough to pay for bills and food, much less college. I don鈥檛 want to put her into more debt than she already has. I was considering investing in small stocks in brands such as Coca-Cola or Starbucks, letting it all grow in the next few years, living very cheaply, and then using my stocks to graduate on the plus side of debt. I know that the stock market is ever fluctuating, however, the economy is coming out the recession, and I hope that by the time I graduate, I might be sitting on enough that I won鈥檛 have to be in debt. I would like to know what your thoughts are.
- Danielle

I would absolutely not bet on the stock market over the short term, and the six or so years you鈥檙e describing is short term in terms of the stock market.

It鈥檚 simply too volatile over that timeframe. You鈥檙e going to probably have one upswing and one downswing in that timeframe, and it鈥檚 hard to tell how good the upswing will be and how bad the downswing will be. A small downswing and a big upswing means you鈥檇 be in good shape. A small upswing and a big downswing means you鈥檒l be in the hurt locker. Plus, the brokerage fees for small amounts will eat a lot of your earnings before you even have the chance.

Your best bet would be to sit on cash, honestly, or to open up a 529 college savings plan. Don鈥檛 invest in individual stocks over the short term with small amounts of money.

I鈥檓 a recent college graduate and not even retail jobs will hire me or even give me an interview. It鈥檚 not like I鈥檝e never had a job before but it鈥檚 impossible to find work anywhere in this economy. If it weren鈥檛 for my tiny savings I鈥檇 be out on the street (I鈥檒l likely be there in 2 months if I don鈥檛 find work soon). I鈥檝e been applying to any and all jobs I can find鈥搑etail, food service, lab assistant jobs related to my major, human resources, etc. but no one will even look at my painstakingly assembled resumes. Furthermore, my parents have expressed that once my college bills are paid, they鈥檙e not willing to help me. What do I do?
- Michelle

Keep searching. Build skills. Try hard to network with people in your field.

For one, you鈥檙e probably looking grossly overqualified for many retail positions. They look at your painstakingly assembled resume, see someone who views the job as a temporary thing while they find something better or, alternately, a person who will have too many 鈥渋deas鈥� that aren鈥檛 worth dealing with, and pass you over. If you鈥檙e applying for minimum wage service and retail, you鈥檙e better off not handing in the four page detailed resume. Keep it one page and very simple.

You may also want to look in a different area of the country. Here in Iowa, there are definitely people hiring at the retail level 鈥� I鈥檝e seen plenty of 鈥渘ow hiring鈥� signs here and there in the greater Des Moines area.

I have a question regarding mortgage prepayment. Hopefully, you and the readers could offer some advice. Little background: I stumbled upon your blog when mired in debt and utterly careless with money/ future despite having decent jobs. Your blog and book has been immense help for us. Since then, we have paid off all our debt except for the mortgage. All the retirement vehicles are fully funded. We also have a decent emergency fund. We live frugally and save as much as we can. We still have around $1000 left every month. Currently, I鈥檓 sending it to ING. Afraid of investing in stocks and bonds beyond the retirement accounts. Now, I understand both the sides of the mortgage prepayment argument- guaranteed return, peace of mind and better cash flow Vs losing opportunity to grow money further by investing in even simplest of mutual fund. My question is what are your thoughts on prepaying during this period of falling home prices especially when your time frame to move/ sell could be anywhere between 1-5 years. By the way, we owe 260K on our home and have a 30-yr FRM @ 4.8%
- Sam

If you鈥檙e planning to sell that soon, it really doesn鈥檛 have an impact on prepaying because if you sell, you鈥檒l either be making up the shortfall then or making it up in pieces now 鈥� or, if the market is going up, you鈥檒l either have a big gain then or a little gain then.

The big advantage of prepaying is that it reduces the total amount of interest you pay and it reduces the time until you鈥檙e fully paid off, which will increase your monthly cash flow significantly. Since you鈥檙e going to be selling soon and your interest rate is low, it鈥檚 reasonable to look at other investments. The trick, though, is that over the short term you have, the stock market isn鈥檛 a reliable investment.

Given everything involved, I would probably just sit on cash because of how liquid it is. Put it in the highest interest savings account you can find and see what happens in the next few years. That way, you can easily deal with whatever may happen in that period (and probably make your next purchase easier).

I was wondering who you think should head the new Consumer Financial Protection Agency, and if you鈥檇 be willing to mention it in a reader mailbag? I know you don鈥檛 normally blog about politics, but this is something that will directly affect personal finance for all of your readers, and I鈥檓 sure you鈥檝e got an interesting viewpoint on it that we鈥檇 all like to hear.

I tend to favor Elizabeth Warren (whose name is the only one I鈥檝e heard for the job so far) because she seems to genuinely care about protecting consumers, and she鈥檚 from Oklahoma
- Joe

First, a background: the Bureau of Consumer Financial Protection is a new government agency signed into law in July as part of the , which has a lot of things going on in it.

Wikipedia鈥檚 summary:

Established within the Fed, the Bureau is tasked with regulating consumer financial products and services in compliance with federal law.[29] The Bureau is headed by a director who is appointed by the President, with the advice and consent of the Senate, for a term of five years.[29] The Bureau is subject to financial audit by the GAO, and must report to the Senate Banking Committee and the House Financial Services Committee bi-annually. The Financial Stability Oversight Council may issue a 鈥渟tay鈥� to the Bureau with an appealable 2/3 vote. Even though the Bureau is placed within the Fed, it operates independently.[146] The Fed is prohibited from interfering with matters before the Director, directing any employee of the Bureau, modifying the functions and responsibilities of the Bureau or impeding an order of the Bureau.[29]

The Bureau is separated into five units:[29]

* Research
* Community Affairs
* Complaint Tracking and Collection
* Office of Fair Lending and Equal Opportunity 鈥� ensuring equitable access to credit
* Office of Financial Literacy 鈥� promoting financial literacy among consumers

Within the Bureau, a new Consumer Advisory Board assists the Bureau and informs it of emerging market trends.[29] This Board is appointed by the Director of the Bureau, with at least six members recommended by regional Fed Presidents.[29]

To me, this sounds like something that鈥檚 going to be heavily defined by the first group of people running it. Elizabeth Warren () seems like a perfectly good choice. She at least has , which puts her ahead of many other people who might be competing for such a position.

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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