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.
Cross country move
Building credit without cards
Quick repayment and credit scores
Income generation in retirement
401(k) manipulation
What鈥檚 your day like?
Fix it up or not?
Emergency fund vs. financial aid
Handling proceeds from sale
Epic board games, not D&D

I have had consistent dreams lately in which we have a fourth child, a little girl with strawberry blonde hair. She keeps showing up in dreams of all kinds as if she鈥檚 naturally part of our family. I鈥檓 not sure what to even make of it.

Q1: Cross country move
You may have covered this before. I am about to embark on a cross country move with three small children. My husband is going for a job where he will make significantly more money. We will have the opportunity to pay off our very high student loans in a few short years and save for the future. I am not too excited about the place we are going and I love my life here 鈥� job, career, friends, etc.

I am struggling with what to take. I grew up with borderline hoarders so I have a skewed perspective on what is trash, clutter and useless. Once we paid money for things, we used them way past their life expectancy and tended to keep them forever. I still feel guilty throwing away things that may be useful one day or that I spent money on.

I have spent a good deal of time over the past two years decluttering and I feel that this move will help a lot to finish up getting rid of things that are not useful or not treasured. I also have the mindset that I want to be frugal and not have to repurchase things once we arrive. The salary my husband will earn will allow us to afford the option of getting new things, but I am not sure that is the best option. I am concerned that I will miss items from this life that I love where I am now. Perhaps they will help me adjust to my new life 鈥� or perhaps new items will help me.

Here are some general items that I am conflicted about.

Linens 鈥� sheets, towels, kitchen towels, etc 鈥� do we take with or purchase new?
Dishes and other kitchen items from our wedding 15 years ago? Have I used them long enough to justify getting new ones?
Kids toys 鈥� how do I decide what to bring?
- Elizabeth

With each item, ask yourself a few questions.

First, will we really use this item after we move? Is it something we鈥檒l actually use a lot upon our arrival? If the answer is no, leave it behind.

Second, will it cost more to ship the item there than to replace it when there?

Third, does the item itself have sentimental value or does the sentiment reside mostly in your mind?

Finally, does this have any resale value right now?

You鈥檒l find that those questions, as a whole, will really filter your items. The ones that make it through this type of thought process will be the ones you want to take with you.

Q2: Building credit without cards
My question: how to get non-bankcard credit when I don鈥檛 need anything?

My credit scores now average 760 and yet can鈥檛 manage to get a second non-secured credit card to help me build additional credit.

I did have bad credit up to several years ago but that has all been wiped off my report for at least 3 years. I currently have one Mastercard (about 3-4 years, started out as secured and is not unsecured at $4500 credit 鈥� the limits went up incrementally from $500 over the years). When I applied for a second card (twice) I was refused not only for short credit history but for lack accounts that were NOT bankcards. So now I have a secured Visa for $900. (I don鈥檛 actually need the credit, I just bill my Netflix through it and pay it off each month; it鈥檚 purely to help me build a credit history with various accounts and a higher credit limit.) Also, the Visa doesn鈥檛 seem to want to let me know when they plan to transition me from a secured card to unsecured. My Mastercard was much better about this. But my Visa seems to be a little 鈥� amateur in their online systems and communications? I don鈥檛 plan to keep the card if they plan to keep it as secured because I pay $10/month for it (horrible deal, but it was all I could get, strangely.)

Re diversifying my credits: The thing is 鈥� I don鈥檛 want a mortgage, I don鈥檛 need a car lease or insurance (NYC!), my apt can鈥檛 have a washer/dryer. I don鈥檛 need expensive furniture. The only thing I could see using is upgrading my 8 year old tv to a much larger and better one on a payment plan but I鈥檓 afraid that that will just be considered bank credit if the electronics store card is filtered through a bank?

I鈥檓 really at a loss as to what non-bankcard credit IS and if I don鈥檛 need a mortgage/car/lease/washer/dryer 鈥� how am I going to get it?!

Please let me know if you or your readers can shed some light as to how the classification of these things work (is a bank loan different than a bankcard?). And what kind of credit I should be aiming for? Non-bankcard credit ideas?
- Jesse

Something seems strange to me. If you have a credit score of 760, you should not be having trouble getting an unsecured credit card with a low credit limit.

If I were you, I鈥檇 check my credit report as soon as possible and make sure there鈥檚 nothing incorrect or out of order on it. Use the to do this.

If your credit is in order, apply for a different unsecured card quickly. You shouldn鈥檛 be paying $10 a month for the 鈥渟ervice鈥� of a secured credit card if you have a 760 credit score.

Q3: Quick repayment and credit scores
I am 24 years old, making 60k a year plus bonuses with usually equally around 15k a year. I have no debt in the form of student loans nor do I have any credit card debt. My only debt is on a new car that I recently purchased when I moved to a city where a car was necessary. The loan is for approximately 21k and the interest rate is 5.99% and the term is 5 years. I have $7,000 in an emergency fund which covers about 3 months expenses. My question is that I am about to receive my spring bonus which will be around 9k after taxes. My thought is that I should just put all of this toward the car so that I am paying less in interest over the next couple years and just continue to pay off the car as soon as possible. This seems to make sense to me as the most financially prudent decision but I just wanted to get your take. The only consideration is that having taken out zero loans and generally avoiding credit cards my whole life, I have very little credit. That is one reason that I was keen to take out a car loan. But if I pay it back quickly does that have any negative effect on my credit score. I鈥檇 obviously rather pay down the car so I鈥檓 not paying as much in interest but I just want to know how that will affect my credit.
- Daniel

It won鈥檛 have an immediate negative effect on your credit score, but as time passes without any outstanding lines of credit, your credit will gradually go from 鈥済ood鈥� to 鈥渘eutral.鈥�

Given the number of things that businesses use your credit score for, such as determining trustworthiness when applying for a job, determining your insurance rates, and so on, it鈥檚 worthwhile to keep your credit score up.

My usual recommendation for people is to get a good rewards credit card that鈥檚 tied to some specific purchase they do routinely, such as a credit card for their gas station, then use that card for that routine purchase and nothing else and pay the card off each month. This keeps your credit high, doesn鈥檛 give you time to start incurring interest, and often gives you a few perks via the rewards program (such as gas rebates).

Q4: Income generation in retirement
I鈥檝e been working with my dad to help him figure out his finances as he approaches retirement. My mom is recently deceased and he鈥檚 about 5 years away from retirement. He鈥檚 making good money and has plenty in the bank, but I鈥檓 struggling with what he should do to actually create the income that he needs to pay for retirement. He currently holds about 75% of his assets in equities (it was over 90% until recently) that don鈥檛 kick off dividends or anything to create an income stream. I鈥檓 wondering what else you鈥檇 suggest. I think he needs about $3k (after Social Security) in 2011 dollars. My concern with an annuity or a long term muni bond is that they鈥檒l create a revenue stream but they won鈥檛 protect against inflation. He recently sold his house to free up about 1/2 his total net worth and is now a renter, so he does have to deal with inflating rents over a couple of decades or more (potentially). Dad is currently 65 and self-employed (but does not expect to make much if anything on the sale of the business, which is service-driven.

Also, his greatest concern is that he鈥檒l outlive his assets, given the lifespans of his parents, etc. He鈥檚 heard about 鈥渓ongevity insurance,鈥� which I think might be just a form of a variable annuity. Do you know anything about that?
- Robin

By 鈥�$3k,鈥� I鈥檓 assuming you mean $3,000 in additional income per month beyond Social Security.

It鈥檚 hard to offer up a real answer here without some real numbers. Certainly, inflation is a concern. However, inflation is a manageable concern unless you鈥檙e worried about things like hyperinflation, which seems to be an underlying thread here. If you鈥檙e worried about possible economic calamities at an advanced age and aren鈥檛 a millionaire many times over, there鈥檚 not much you really can do.

My honest suggestion is that your father spends his time now doing what things he enjoys doing that have some potential of earning him future income. For many self-employed people, that often revolves around whatever they鈥檙e self-employed to do, because self-employment requires a lot of initiative, desire, and focus.

If he鈥檚 not able to do it any more, has he considered hiring someone to do the grunt work for the business while he handles other aspects of it?

Q5: 401(k) manipulation
I lost my job on Friday. It鈥檚 unfortunate, but I鈥檓 viewing it as an opportunity to leave behind a job I wasn鈥檛 enjoying and find something that may make me feel excited to get out of bed. Thankfully I have a strong support group, and I received a bit of severence to help me look without having to be desperate.

I had a 401K at my previous job that I certainly want to make sure I retain its maximum value as I move on (although it isn鈥檛 much as I鈥檓 still young and hadn鈥檛 been contributing [tsk tsk, I know]). Additionally, my wife has a 401k that we never did anything with when she left her employer two years ago. I assume whatever we do with mine we could also do with hers, although I suppose the situation may be difference since it鈥檚 been so long since she left the employer. I understand these are questions for a financial planner, but given the situation (I was the primary earner) I鈥檓 not sure if I can justify paying someone to answer these questions unless it鈥檚 really warranted.

Do you know anything about any 鈥榞otchas鈥� I should avoid in this process? Is possible to combine her 401k and my 401K into a single IRA (be it Roth or Traditional), or is that not a good idea? Finally, do you have any recommendations for someone who would be able to help us figure this out, or a financial institution that makes the transition very easy?
- Jon

IRAs are tied to individuals. You can roll your 401(k) over to your IRA and your wife can roll her 401(k) over to her own IRA, but you can鈥檛 directly merge them.

One solution for 鈥渕erging鈥� them would be to name each other as secondary beneficiaries on your IRAs. If you have a large net worth, you may want to start moving your assets to a trust of some sort, so you may want to name the trust as the secondary beneficiary.

Typically, you roll a 401(k) into a Traditional IRA (since they鈥檙e both pre-tax money), then you look for opportunities to convert a Traditional IRA into a Roth IRA (pre-tax to post-tax, which means you鈥檒l have to pay taxes on it now but save yourself tax bills later on).

Q6: What鈥檚 your day like?
Do you find that your new lifestyle allows you enough time to do the things that bring you joy? Are you rested in the morning, and satisfied with your day at night? Do you feel less rushed than you did when you worked outside the home, or is your day just as crazy now, but in a different way?

I would be curious to know what a typical day is like for you鈥�.How you basically structure your day. And your wife too, since she works out of the home, what is her day like? After all the changes you have made, do you both feel you have reached your optimal work/life balance, and what do you do when you find yourself leaning too far one way or the other?
- Micki

There is no 鈥渘ormal day,鈥� really. My two oldest children go to preschool most days of the week, but they鈥檙e on different schedules. The youngest child is often with a babysitter when the other two are in preschool (but not always). My role is usually the 鈥渆mergency鈥� handler. If one of them is sick, I almost always take care of that child. If there鈥檚 a doctor visit to be had, I take the child to the doctor.

When I鈥檓 at home without the children, I try to fill my time with as much productive work as I can, hence my need to eliminate distractions and focus on the work. These work periods can happen at any time, though, and they do. Sometimes, I鈥檒l be working early in the morning. At other times, I鈥檓 working in the mid-afternoon. At other times, it鈥檚 in the late evening (which is actually when I鈥檓 writing this).

I wouldn鈥檛 trade it for anything. Because I鈥檓 doing this, I am always there for my children 鈥� and for my wife 鈥� when they need me.

Q7: Fix-it-up or not?
Our family has our house listed for sale so that we can relocate from the suburb where we live into urban St. Paul where we work and send our kids to school. It鈥檚 a great family home (we have 6 kids) with a walk-out basement, 5 bedrooms, 2.5 baths, 2 fireplaces, a three season porch and a deck that looks out over the park. It was built in the 1960s so it has nice hardwood floors and is a basic quality home. However, during the 8 years we鈥檝e lived in the house it has aged. The windows are old, the siding is nicked up, the driveway is getting holes, the kitchen is old school鈥�. From what I鈥檝e read, it鈥檚 better to try and fix all the worn and broken things when selling rather than to sell as is and take a lower price. The problem with that is that we can鈥檛 afford to put in new windows or replace the siding. Our fourth child is now in college and the only way we could do any of those fix-ups would be to borrow the money. At this time our asking price is below what we paid in 2002. If it sells, we will most likely have to rent our next home since we won鈥檛 get a significant amount of money out of this one. What do you think about the common wisdom that it鈥檚 better to fix the house up even though you won鈥檛 recoup your expenses? I don鈥檛 think of our home as a 鈥渇ixer-upper鈥�. It鈥檚 absolutely livable as is 鈥� just a little worn around the edges.
- Laura

For me, I think the value of a 鈥渇ixer-upper鈥� depends heavily on the personality of the people doing the fixing. Are these types of projects something you relish? Or are they something you dread?

Everyone is wired differently. Some people love painting and putting up drywall and replacing roof tiles. Others loathe it.

If you鈥檙e a lover of this type of work, a fixer-upper is a great choice. You can bury yourself in these projects and usually find yourself turning a profit when you sell.

If you don鈥檛 enjoy them, you鈥檙e setting yourself up for years of unhappiness. It鈥檚 not worth it.

Q8: Emergency fund vs. financial aid
I鈥檓 a single mom with two young teenagers, both of whom I am lucky enough to send to private school. One child is in the school where I work, and the other is in a school for kids with learning disabilities (he鈥檚 dyslexic). Neither school would be possible for me without generous financial aid.

Financially, I鈥檓 in a pretty good place. We live fairly frugally, I have no consumer debt, the mortage will be paid off in 8 years, and a small rental property, while not making money, is almost break-even (I bought it as a long term investment rather than current income). I鈥檓 putting about 10% in TIAA-CREF and have been for 20 or so years. I would like to try build a substantial 鈥渆mergency fund鈥� in case I lose my job or other disaster happens (I am my children鈥檚 only parent), but I worry that having that much liquidity (should I ever get to $25/30K!) will negatively affect how I qualify for financial aid, both for high school and college: if I have that much cash on hand, schools will consider it available for tuition, not 鈥渞ainy day鈥� money. I don鈥檛 have any college savings (other than the option to sell the rental house) 鈥� the kids know that college will be a mix of working, scholarship aid, community college maybe, or living at home.

Do you have any thoughts on how to handle this dilemma?
- Anna

If you have a few months of living expenses in savings, it won鈥檛 dramatically affect your financial aid situation, simply because it鈥檚 not that big of a number in the big scheme of things.

The big numbers 鈥� the ones that will impact things 鈥� are your salary and your other assets. Those things are often able to be tapped into for educational needs.

An emergency fund with several thousand dollars in it is a minor issue compared to the equity in your home or your retirement fund or your annual salary.

Q9: Handling proceeds from sale
In the past my finances were a disaster. Since I鈥檝e been with my girlfriend, 8 years, she鈥檚 assisted me with cleaning up my debt and setting goals. She鈥檚 the 鈥渂anker鈥� and does our budgeting cutting out things we really don鈥檛 need to focus on our future security. She鈥檚 50, not working right now but earned $18,000 last year and has been paying off her loan from the wreckage of the past. Her loan balance is $5300 and will be paid off by 10/2012 without making extra payments. Her payment is $148.30 bi-weekly and she鈥檚 been paying it herself along with contributing 陆 to the food budget, paying for her gasoline, etc. She should hear from unemployment this week and is continuing to look for work.

My situation: I have a current mortgage of $136,000 at 5.62% with 23 years left to repay, an equity loan of $36,000 at 5.99% with 12 years left to repay. The plan is to pay $3800 toward the principal of the equity loan at the end of this year. The bi-weekly payment is $177.10 and I鈥檇 like to get this paid off early. I have no credit card debt. I recently purchased a used 2003 Honda Civic DX with 78,000 miles on it. The monthly payment is $156 for 3 years. I have $4000 in savings. The house is worth about $200,000, I own a 2006 Mazda 3 (paid off), and a 2005 Harley FLHT motorcycle (paid off). My girlfriend drives the Mazda.

I鈥檓 55 and have worked for the post office for 27 years as a letter carrier. I鈥檓 in the Thrift Saving Plan and I upped my contributions to my 401K this year to 12% of my yearly income. My yearly contribution is now $6663.60. The current balance in my account is $125,000. I plan on retiring at 64 with a pension, SSI, and a 4% draw from my 401K.

So here鈥檚 my question: I鈥檓 thinking of selling my motorcycle which is worth $9000. Where should I put this money? My thought was to place it in savings, up my yearly contribution to the 401K, and use this money from the savings to cover my mortgage/equity loan. My girlfriend says to put the $9000 onto the equity loan balance owed.

I agree with my girlfriend to get the mortgage paid down, pay off the equity loan early and continue with the 12% contribution for now. She says I should focus on paying off the equity loan over the next 3-4 years then use the money I was paying for the equity loan and split it between my 1st mortgage and 401K.

What do you think?
- Ellen

Assuming your retirement date is inflexible, the best thing you can do for your retirement is to maximize your monthly cash flow when that day arrives. This means focusing on what debts you can eliminate between now and then. You鈥檙e nine years from retirement. What can you eliminate between now and then? That will have more impact on your ability to retire than having a few thousand dollars more in your 401(k) balance.

In other words, if you鈥檙e flat-out retiring at age 64, focus as hard as you can on getting your debts out of the way. Your timeframe between now and retirement is short enough that investments in high-risk high-return investments have a solid chance of backfiring. You鈥檙e better off getting rid of debts and maximizing your cash flow with a shorter timeframe.

If your retirement date is a bit flexible, then the 401(k) becomes more noteworthy. Let鈥檚 say you鈥檙e not retiring until age 68, at which case you don鈥檛 need to make accelerated payments at all on that equity loan to get rid of it. This allows you to bank more into your 401(k) along the way and give you a more secure retirement at that time (a higher income level with the same debts eliminated). It鈥檚 also important to note that the longer time frame you have for 401(k) investments, the more likely it is that you鈥檒l see good returns on stock investments within that 401(k).

Q10: Epic board games, not D&D
You鈥檝e mentioned many times that you enjoy board games, and you鈥檝e also mentioned that you enjoy reading fantasy novels. I don鈥檛 think it鈥檚 much of a leap to assume you鈥檝e probably played D&D or some other role playing game as a teenager.

I miss playing games like those. I love the epic adventurous feel that they have. I just don鈥檛 have the time to play them as an adult. I do still play D&D on occasion with some old friends who are in the area, but we have a hard time committing several hours a week to it.

Do you know of any board games that capture that feeling but can be played in shorter sessions?
- Eric

There are a lot of games that can fulfill this 鈥渋tch鈥� for you.

For example, if you want to get the D&D experience in about an hour, you can try something like , which is exactly that 鈥� D&D, playable in an hour.

There are other games along these lines that are great to pull out if you find yourself with a longer stretch, but at irregular times. The best of these is .

Both of these games provide the fantasy-oriented rich themes you鈥檙e looking for in a much less time-intensive fashion than D&D. They鈥檙e also a lot cheaper, considering you don鈥檛 need to constantly buy books to update your play experience.

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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