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.
Bank errors and credit cards
DirecTV contract
Pay taxes or shore up?
Next steps
Rental income as retirement planning strategy?
Iowa weather
High rate checking account
Sweating the small stuff
Missing old lifestyle
IRA question

Several people have asked me if I look at things like Amazon鈥檚 Lightning Deals and Deals of the Day. I do, actually, but I usually do it only if I鈥檓 looking for a specific item.

I usually have a list of items around our house that are still functional, but eventually need replacement. Our blender is a good example of this 鈥� the lid is missing, there鈥檚 a crack in the jar, and the blades are awful.

So what I do is I automatically search those things for 鈥渂lender鈥� just to see what pops up. I use to make it automatic.

If a great blender shows up, it鈥檚 likely I鈥檒l go ahead and pick it up.

Q1: Bank errors and credit cards
I bought a house in 2009 and recently got married and am expecting our 4th child (he has two, I have one and we鈥檒l have another one at the end of summer.) I have the house listed and it鈥檚 in a pretty popular price range in our little town. I am hoping to sell it by the end of summer and if not, I will rent it out.

Back in November, my mortgage holder sent me a statement that said I had over-paid into my escrow account and that they鈥檇 adjusted my payment. It was lowered $60. I paid it, on time, like usual. Then I thought about it. I had paid no taxes in 2009 because the previous owner was under the homestead act and didn鈥檛 have to. When I bought it in September of that year I wouldn鈥檛 owe any for the year either. But I would for 2010. So I called the bank and explained why I thought it was wrong and we agreed it was fine to make up the $60 into escrow over the next two months.

The next three statements were way out of whack. One said I owed double my payment (as if I hadn鈥檛 made the previous month鈥檚.) The next month showed about the same. I called each time and confirmed they鈥檇 gotten it and Teresa, the gal at the bank in charge of my account said some how the statements were wrong and we鈥檇 get it fixed that I was current on my account. I was in contact with her several times. Two months ago I noticed there was a late fee on there, resulting from the 鈥渓ate鈥� $60. I called, talked to someone other than Teresa who took it off and said everything was cleared up. I have never been late and have the bank statements to prove it. However, I have a 鈥渄ing鈥� on my credit report for a 鈥減ossible negative action鈥� and it lists the bank as the insitution that reported it. I also got a notice from my 2nd oldest credit card (that had a $7 balance) that lowered my limit from $2,000 to $500 due to the change on my credit report.

Is the bank wrong, or am I? I paid what they asked me to each time and I have never been late other than their mistake, which we agreed upon and was only caught thanks to myself thinking ahead. How do I fix this? Is it okay to cancel the credit card? That is the ONLY negative (or possible negative) action on my report and it鈥檚 only on one of the three reports. My husband and I will probably look at building a new house in the next couple of years and I don鈥檛 want to jeapordize our plans.
- Erin

I don鈥檛 think the 鈥渄ing鈥� will have a huge negative impact on your credit report. Still, I would be very suspicious of the behavior of the bank in this situation. Based on what you鈥檝e said, it does not sound like the bank is handling the situation well.

The only impact of cancelling that credit card is that it would alter your debt-to-credit ratio a little, but if you have multiple credit cards and you鈥檙e cancelling one with just a $500 limit, it鈥檚 not going to have a big impact. If it makes you feel better, cancel it, but it won鈥檛 erase the 鈥渄ing鈥� on your credit report.

Your best approach would be to demand the bank get that removed from your credit report. Don鈥檛 be afraid to keep escalating the issue until it gets fixed. If you have documentation showing that you鈥檝e made every payment as you should, they should not be 鈥渄inging鈥� your credit report.

Q2: DirecTV contract
Trent, long time reader, first time needing your help! Wanting to simplify, not watch so much tv, and cut expenses, I鈥檝e notified Direct tv of our intent to cancel. We signed up almost three years ago, so no contract. I thought. In March, 2010, we obtained a dvr through a third party, our locally owned private telephone company. Small town, we know these people, so it was very informal. I have verified with them that I never signed anything. Yesterday, DTV said I would owe them about $250. for the remainder of our 鈥渃ontract鈥�. I鈥檓 taking this through the channels; first speaking to a woman in the retention dept. Following her instructions, I emailed DTV, and just received a response, with a copy of the contract, that supposedly I was presented. Of course, it鈥檚 just a form and has no signature. After a search, I鈥檝e noticed it鈥檚 apparently quite difficult to get DTV to actually cancel this penalty fee. Your thoughts would be much appreciated. Is it a concern that I notice at the bottom of your page, that they are one of your sponsors? I don鈥檛 want to cause a 鈥渞ift鈥�.
- Peggy

My suspicion is that you鈥檙e being charged for terminating the lease on the equipment. I would highly recommend that you read what you signed to get DirecTV service very carefully. You may not have signed a contract, but you had to have signed some sort of agreement in order to get the service at all.

Services like DirecTV that involve both programming contracts and equipment leases can be very challenging to get yourself out of. Unless you can hold up a copy of all documentation you signed and demonstrate that there is no lease arrangement with DirecTV, you鈥檙e likely fighting a losing battle. They make it difficult to get out of such arrangements on purpose, as people will often just continue the service to avoid the conflict. It鈥檚 a good business model, though not a customer-friendly one.

DirecTV buys ad space on The Simple Dollar, but I have no 鈥渟ponsors.鈥� No one alters a word that I say, and if they try, they鈥檙e quickly told to get lost.

Q3: Pay taxes or shore up?
My fiance and I currently moved back to the US after living abroad in England (myself for only 5 months, him: off and on for about 2 1/2 years). We鈥檝e been back in the States since early October, and since then we鈥檝e re-established a household and are rebuilding our savings. We currently have about $5200 in an emergency fund, and another $500 or so in various accounts for things like vet expenses and car maintenance. We own our car (share) and have a reasonable rent ($920/month) I believe strongly in saving as much as reasonably possible and have so far been able to put aside about half of all my income. I currently work full time as a teller for $12/hour. And, at 24, am starting to plan for (our) retirement. Both my finance and I don鈥檛 have any debt to our names.

My boyfriend works in the music industry, which generally yields a good windfall every few weeks that covers our rent and utilities. It鈥檚 sporadic work, so he sometimes moonlights as a graphic designer, bringing in a decent amount of freelance work. The problem is this: as he was back and forth so frequently between the US and England for 2 1/2 years, with modest pay, he hasn鈥檛 filed his taxes in 3 years. When I took a look at his tax situation a few days ago, I realized he would end up owing between $5000 and $6500 in taxes.

My question is this: aside from the moral implications (I believe in paying taxes), would it be more fiscally prudent to risk another year not filing? I feel like another year will help us recoup from moving half a world away and also allow us time to bring in more income and reach our savings goals ($15,000 in emergency fund, start on both retirement funds). I feel like we鈥檙e currently crawling at a snail鈥檚 pace financially and I just don鈥檛 feel secure clearing out our savings accounts. We also both have low credit scores due to a lack of credit history and medical collection accounts, so I fear any loan we qualify for would come with a high interest rate.
- Lindsay

Playing games like this with the IRS is like playing Russian roulette.

Typically, when you earn money, it鈥檚 reported to the IRS. They keep track of what income should be reported for people. Their agents usually deal with the bigger fish and the easy-to-catch fish first, as the time invested for the reward makes more sense, but they do often eventually go after the small fish (which is what you guys are).

Should you not file? It鈥檚 a gamble. It鈥檚 not one I鈥檇 personally take. If I were you, I鈥檇 file and get the issue out of the way now when it鈥檚 relatively small.

Q4: Next steps
I feel like I鈥檓 at a crossroads in my financial planning and I鈥檓 not really sure what my next steps should be. For starters, I鈥檓 graduating next month with a Masters Degree in Counseling Psychology. I earned my masters at a costly private college because it was the only program in my area that would allow me to keep my current job and combined with undergrad, I have about 72K in student loans ( I only burrowed to cover tuition); all of which are currently in deferment. In the past year, I鈥檝e finally become disciplined and managed to save $11,000 into my ING account. However, I鈥檓 not sure what to do next. Should I take a large chunk of this money (like half) and put it towards my student loan debt? I have no credit card debt or car loan debt and neither does my husband. Some people have also suggested investing a small amount ~1500 in gold and/or silver and putting the rest into a money market fund. Or would it be best to leave the bulk of this money alone as emergency money? I鈥檓 also planning a vacation to London for next year to visit family and would love to attend the opening ceremony at the summer Olympics while I鈥檓 there. This is something I鈥檝e always dreamt of doing, but it would cost me approximately $654 for the tickets, which would be a complete splurge, but a lasting memory. My current salary is 55k. In my mind I feel that making a smart choice at this point would make a big difference for me in the future. What would you do?

A Few More specs about me: Married, 31, w/one preschool age child. Combined HH income is about 94K, but we live in the SF Bay Area so that鈥檚 not much for this area. My employment is relatively steady (I work as a counselor in public college) strong future prospects with my new degree but unfortunately bad timing 鈥� I anticipate being able to find a full time tenured position as a college counselor in the next 1-3 years, my husband works in the hospitality industry and his income sometimes fluctuates. We are currently renting and do not plan on purchasing a house for a long time since we want to be able to put at least 20% down and a moderate house in this area is in the very high 300鈥瞫 or low 400鈥瞫. We also want to have the student loans completely paid off before purchasing a home.
- Yancey

First of all, I wouldn鈥檛 take money from your emergency fund to pay down your student loan. Usually, student loans are not high interest debts. If yours are, you should look into some form of loan consolidation.

I would not buy rare or precious metals unless they were part of a larger investment strategy. Having a significant portion of your finances in an extremely volatile investment is rarely a good idea, and silver and gold are both very volatile.

I don鈥檛 think the London trip is a bad idea. However, I would start saving for it now by putting aside a small amount each month 鈥� or even each week 鈥� for the trip. $25 a week, starting right now, would pay for that whole trip and then some.

Q5: Rental income as retirement strategy?
Two of my mom鈥檚 co-workers recently bought second homes in a desert community and, within a month, both found renters for $1600 per month. My mom is excited and wants to do the same. Her situation: she and my father are 8-10 years from retirement. My father racked up a huge amount of business debt, so they will have to sell their suburban home eventually to pay it off before retirement.

Houses out in the desert have fallen to the low $100Ks. My mom calculates she can pay in cash if she borrows about $30K from her 401k. She says she can pay it back within 2-3 years. Meanwhile, the rental would generate income until my parents sell their suburban home to pay off debt. Then they can move there and live almost rent-free in retirement. They would have about $200K cash leftover from the sale of their home, plus their 401k, IRA, and social security benefits for a modest but comfortable retirement.

My mom sees no downside to this strategy. She calculates that she can afford to make the payments even if she doesn鈥檛 find renters for a year and/or loses her job. Job loss is a distinct possibility within the next 6 months, but she assures me that she could still make the payments on unemployment benefits.

My opinion is that she is rushing into this decision, and I strongly advised her to wait until 1) her job situation was clear, and 2) she could buy the property without borrowing from her 401k. She thinks that by waiting, she is forfeiting $1200-$1400 per month in potential rental income. Plus, she already calculated that she could survive in the job loss + no renters. She plans to start making offers on properties this week.

Is this as foolhardy as I think it is, or am I worrying too much?
- Charlie

I agree with you. I don鈥檛 think this is a decision to rush into. Investing in rental properties can be fraught with headaches.

For starters, there is no guarantee of a renter. Even if you get one, there鈥檚 no guarantee, no matter how much you check them out, that they鈥檒l be honest people who will take care of the property. There are also many regular expenses involved in owning a rental (maintenance costs being a big one), and it can be a time investment.

Rentals can work, but they usually work best with people who are devoted to the process of being landlords. Does she want to be a landlord? Does she relish dealing with tenants and maintenance requests? Is she willing to accept some significant financial risk? These aren鈥檛 easy questions and they shouldn鈥檛 be rushed into.

RELATED: Europe's 5 most generous pension systems

Q6: Iowa weather
I hope you and your family are safe after the nasty weather in Iowa.
- Donna

Most of the frightening weather earlier this month was far to the west of us. Generally, the only poor weather that affects us is in central Iowa.

If you hear reports of poor weather in northern Iowa or western Iowa or southern Iowa, we鈥檙e generally going to be safe. It鈥檚 bad weather near Des Moines that would affect us.

I鈥檝e lived in the Midwest my whole life, though. I know about tornadoes. I鈥檝e seen a few, and I certainly know what to do if I do see one.

Q7: High rate checking account
I have been toying with the idea of a separate savings account to encourage regular saving (i.e. automatic deposit to where I don鈥檛 see it). However, I cannot justify moving any money from our checking account. From the research I鈥檝e done, much of it through your site, I cannot find any place that will give me the 2.5% APY that I get from the checking. Any hints about how to still save even though I can always see it in the checking account?
- Rachel

If you鈥檙e getting that kind of rate on a checking account, stick with it. You鈥檙e right: it鈥檚 better than pretty much any savings you鈥檒l find right now.

Usually, such checking accounts come with some sort of catch: a certain number of transactions per month, a certain minimum balance, and so on. If you鈥檙e able to meet those demands without any additional effort, you should take advantage of it.

If you鈥檙e trying to find such an account, be careful. Many such accounts have fairly stiff requirements to get the rate 鈥� and if you fail to meet those requirements, you usually wind up with next to nothing.

Q8: Sweating the small stuff
I have gotten to a stage where I can鈥檛 cut much fat anymore. I have mastered all the low hanging fruits. Now I really have to look into things like making my own laundry detergent, tracking every single cent etc.

I have talked to many people about personal finance and they have told me not to sweat the small stuff. They said as long as you spend less than you earn and invest the difference over a long-term you鈥檒l be fine. They said saving ~$x every few months by making your own detergent is not going to have a huge impact on your PF and that PF is terribly simple and no need to make things overly complicated.

Would you agree?
- Chris

Generally, the people who say 鈥渄on鈥檛 sweat the small stuff鈥� are at a very financially secure point. They have enough income that they really don鈥檛 have an imperative to sweat the small stuff because they鈥檙e not in a case of financial need.

Personal finance is simple if you have a large, steady income that is substantially higher than your expenses. If you鈥檙e lucky enough to be in that group, it鈥檚 very simple.

That鈥檚 not the reality that a lot of people face, though. A lot of people live paycheck to paycheck. Their income doesn鈥檛 exceed their expenses for whatever reason and they don鈥檛 live a lifestyle where there are big things to cut.

Quite often, people see the problems in their own lives and believe that they鈥檙e the same problems everyone else faces. I鈥檓 certainly guilty of that myself at times.

Q9: Missing old lifestyle
Growing up, I was not pretty spoiled, materially speaking, and was never taught to manage money. This led to bad spending habits in adulthood, and a divorce caused me to have to settle with my credit card companies because my debt was huge. I have always been one of those people that will buy something on impulse, and shopping has always cheered me up when I am down.

Recently, my fiance lost his job, and I am a grad student whose only income is as a teaching assistant, so we are really in a horrible place where it鈥檚 not possible to even pay our necessities, let alone 鈥渟plurge鈥� at all. We are both looking for full time jobs now, but are not having much luck.

I am so miserable right now. I miss being able to eat out, or buy something for myself now and then. I don鈥檛 know how to be happy like this, and I鈥檓 not sure how I can really work on accepting it. I also don鈥檛 want to live irresponsibly anymore either, because I know the importance of saving and being debt free now鈥� so I really don鈥檛 want to return to that way of life even when I鈥檓 able to. Do you have any tips on accepting (and enjoying) this type of lifestyle?
- Ashley

For me, the biggest switch in getting away from materialism was to start focusing on what I had rather than what I didn鈥檛 have.

For example, I used to really lament not being able to eat out all the time with Sarah. After a while, though, I began to realize that the good part of that was that I got to eat with Sarah. Eating out was a treat, but it wasn鈥檛 the part of the equation I really valued.

I have a roof over my head. I have a wonderful wife and a wonderful family. I can keep food on the table. I have the things that are really important to me.

You can either look at your life as a cup half full or a cup half empty.

Q10: IRA question
I just realized I have made a mistake on my IRA contributions and I鈥檓 not sure how to clear it up.

Because of a change over to a new position at my job which included enrollment in a retirement plan and salary bump, I priced myself out of being able to deduct contributions to my ira from my income.

So I made $5000 worth of contributions this year to my traditional ira, which should instead have gone into a roth ira (higher income limit).

Do you know how I can recharacterize the contributions I made to the traditional ira as contributions to your roth ira? Is it a matter of simply transferring the money from one account to the other. I use vanguard.
- Stan

You typically don鈥檛 get 鈥渢akebacks鈥� on retirement plan contributions. If you contributed to a traditional IRA, it鈥檚 in the plan. You don鈥檛 get to take it back without facing tax penalties.

Your best bet is to live with this contribution and then convert your Traditional IRA into a Roth IRA. Obviously, you鈥檒l have to pay taxes on the amount you convert, but then your money will be in a better place for the long haul.

You can always contact your brokerage and ask if there are any additional loopholes I don鈥檛 see, but this seems to be the best plan.

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 (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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RELATED: Europe's 5 most generous pension systems