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.

Combining budgets
Considering major life changes
Board games with wife
Nervous about adjustable rates
Starting business with debt load
Low-yield savings account
Self-employment and debt
Emergency fund use
Psychological trick with online shopping
Employer bankruptcy and 401(k)/403(b) status

Several people have asked me what food I miss most since switching diets.

Easy. Cheese and eggs. I really don鈥檛 miss the meat too much at all, but a cheese-and-egg sandwich still sounds wonderful to me.

Q1: Combining budgets
I am recently married and we are interested in combining our finances soon. I鈥檓 first in the process of selling my house. When this happens (hopefully soon鈥�my agent expects an offer from another client this evening actually) it will free up about $900 a month for us. (The payment, insurance, taxes, utilities, etc.) We鈥檝e maintained seperate accounts since we were married a few months ago and decided it would be a good idea to combine them when we were free of my house responsibilities.

We both have kids, and are expecting another soon. We both really got after our cc debt the last year and have decided that paying down any debt is the most important thing before we either buy or build another house or add on to our current one. But the truth is I don鈥檛 think either of us has a real great idea of what the other actually pays out each month. I don鈥檛 think we鈥檙e being deceptive but we鈥檝e both been independent for so long that sharing this or even starting to work on a budget has kind of been shrugged off.

Is there a budget form or method you could recommend that would lay it all out on the line for us? Call it lazy or what-have-you, I feel like we鈥檇 be both more willing to set a budget and be more upfront about everything if we had something pre-made to work with. I would even settle for a book or another site that would help me explain and feel more confident in this.
- Erin

Generally, I don鈥檛 think budget forms really work aside from just creating a picture of how people spend their money. They either create too many categories or not enough categories and result in confusion or difficulty for the people involved.

If I were you guys, I鈥檇 sit down together and look at your last few months of bank statements and credit card statements so you can see where your money actually goes. Talk about these things openly, not defensively. If you can do this without trying to hide things or getting anxious or angry, you鈥檙e probably in a very good place when it comes to money.

If you鈥檙e find you鈥檙e having trouble making ends meet, I suggest 鈥渁utomatic budgeting,鈥� meaning that many expenses are automatically withdrawn from your checking account. Set up an automatic transfer to your savings account each week. Set up online bill pay and have many bills paid automatically. In other words, take care of as much stuff as you can automatically so that you can feel more free to use what鈥檚 left for what you want.

Q2: Considering major life changes
I am a 28 year old girl who is at a crossroad in her life and clueless of which direction to take. 8 months ago I quit my software job of after six years, as I found myself procrastinating endlessly at work. I was also medically diagnosed with anxiety depression at the time. I quit my job and started mediation about the same time and the next 3-4 months were pretty good sans the occasional bouts of depression and feeling of 鈥榳hat am i doing with my life鈥�.

I took up art classes, something which I always wanted to do and travelled a bit and the introvert that I am the meds made me feel more talkative and confident of myself. My doctor slowly stopped my medication and I continue taking therapy on and off. I moved back to my home town (where I had been living most of my adult life with my parents. I had moved overseas 3 years ago after I got married) last week and I felt the time was right for me start working again.

I had been considering other career options all the while during my break but I could never feel motivated enough to go and do something about it. I enjoyed painting but I would procrastinate to paint on my own at home when I stopped the classes. I enjoy writing but I would again procrastinate when it came to writing a blog post and not to mention my fear of being ridiculed. I found myself being drawn to design (graphic, well designed products, art) but I couldn鈥檛 figure out what to do about it.

I enjoy crafting and always dream of making the next best craft but I never get around to actually doing it. The rare once that I do, I do almost in secret since I worry about being laughed at. So anyway after my return last week, with a bit of influence from the people around me, I was convinced and I convinced myself too that I was not able to figure out what to do with my life for 8 months so if I sit idle now the same routine will continue so let me get back into a software job for now and slowly plan on a career change.

But as I started applying for jobs and attended interviews I realized I was not at all interested in it just as I felt 8 months ago and I am not at the top of my technical skills right now so all the rejections hurt my confidence bad. I do believe if I brushed up my skills a bit I could very well find a decent job but I don鈥檛 feel motivated to read anything technical. I put the book/monitor in front of me and I find myself distracted in 5 seconds.

I have been trying to convince my husband and parents that software is not for me and I want to do something else. But obviously the first question everyone asks me is 鈥渂ut what DO you what to do鈥� and I have no answer. I have some vague ideas of wanting to be a painter or doing a design course or starting my own craft store but no concrete plan to get there. And I am not even sure if I will enjoy doing that full time and I feel like I cant take another chance at this stage. So in the end I feel like I am back where I started 8 months ago. So my question to you is do you have any suggestions of how I can get started on getting my life back on track? I should also mention that my husband and I are pretty financially stable so money never motivated me either.
- Satya

My immediate response to this is to ask you what things you can actually do with sustained focus. What do you spend your time on (that鈥檚 not purely entertainment, like television) where you鈥檙e not bored or distracted quickly?

If you can鈥檛 think of anything, I suggest getting a very simple job, like a checkout clerk, and spend your free time finding what it is that you want to do and can actually do with some degree of success.

It doesn鈥檛 sound like the technical field you were in is the right field for you now. If you can鈥檛 focus for more than a minute on it, you鈥檒l never really succeed in that field. Take this crossroads in your life as an opportunity to figure out what comes next.

Q3: Board games with wife
I have been making a concerted effort to spend more time with my wife lately.

I was wondering if you could recommend a boardgame that my wife and I could maybe enjoy by ourselves?
- Ron

I could give you a long list of suggestions here, but it鈥檚 often hard to tell what will 鈥渃lick鈥� with people. It depends a lot on their personalities: their patience, their willingness to think about a situation, their attraction to well-produced components, and so on.

For two players who haven鈥檛 played a lot of board games, I would probably blindly suggest . It鈥檚 a game with well-produced components that can be played in about an hour in which players are trying to build connections between cities. It鈥檚 very simple to learn and involves quite a bit of bluffing when you get good at it.

Another choice, one my wife and I played a lot before we had kids, is . It鈥檚 an easy-to-learn card game in which you鈥檙e trying to make sequences of cards and is playable in about thirty minutes. There鈥檚 some arithmetic involved, but aside from that, it鈥檚 really easy to pick up and enjoy.

I can鈥檛 guarantee you鈥檒l love these, but they鈥檙e good starter suggestions for a couple wanting to play board games together.

Q4: Nervous about adjustable rates
I鈥檓 currently living in a house with two (non-FHA) mortgages owing approximately $400k in total. One is a HELOC at 125k and the other is a 5/1 ARM that鈥檚 not in the adjustable rate portion of the the loan. This loan readjusts the rate every year. Last year it was 3.125% and this year it鈥檚 3%. After taxes and insurance, I pay about $2500 per month on the two loans. Now, most likely, the house could be sold for $400k (I would lose 5% or $20k on commissions unless I did FSBO). It鈥檚 also inevitable that interest rates will start climbing again and I will start owing considerably more than $2500 per month, just to live there. Even now, I generally live paycheck-to-paycheck on $70k paying either the mortgage or all the other bills.

Besides trying to find a higher paying job, what鈥檚 my recourse? Should I walk away from the home? Should I hope that housing values recover more quickly than interest rates? Should I try to sell now at a loss? Should I play the lottery?
- Tom

Can you find a place to live that鈥檚 cheaper than the interest you鈥檙e paying each month right now? If you can鈥檛, then I鈥檇 keep paying the mortgages. If you can, then I鈥檇 sell.

You鈥檙e right 鈥� eventually, interest rates are going to rebound and then the interest rate on your mortgage will go up. When that happens, it will probably change the equation for you in terms of what the least expensive living option is.

However, if your situation now points toward your current low-interest mortgage being the best deal for you, stay put for the moment. Sell when it鈥檚 clear that rates are actually rebounding and there鈥檚 an actual cost to you. Don鈥檛 move into a more expensive situation out of fear.

Q5: Starting business with debt load
I borrowed approximately $125,000 (which is now approaching $140,000 when you count the interest) to attend a good law school in New York. I graduated last year, with good grades, and passed the bar, but the only job I found was working part-time for a professor at my old law school. My fiance found a job in Canada, and we will be moving up there this summer. In the meantime, I鈥檝e moved back in with my parents, and am continuing to work remotely for my professor. I鈥檓 also trying to start a business 鈥� I鈥檝e been operating it as a side business since 2007, but I鈥檓 gearing up to turn it into something full time.

Since I moved back in with my parents, I鈥檝e been able to save some money (approximately $7000). However, I am reluctant to use it to pay off my student loans for two reasons: 1) I鈥檓 afraid we will need the extra money to buy furniture, etc. when we move to Canada and 2) my position with the professor ends at the end of June, so I won鈥檛 have any predictable income coming in after that. My fiance鈥檚 postdoc job will pay approximately $40K, and he has told me that I don鈥檛 have to contribute to the rent.

So, here are my questions:
1) Should I use what I鈥檝e saved up to start paying off my loans, or should I wait until I have more steady income?
2) Should I try to invest the $7000 (or part of it), instead of letting it sit in my checking account?
3) Do you think it鈥檚 really wise of me to try to start my own business now, with such a heavy debt load, or should I look for a job when I get to Canada? (I can鈥檛 practice law immediately up there 鈥� so I鈥檇 be looking for jobs in journalism, biology (my undergrad degree) or as a paralegal.)
- Michelle

First, I would not use that money to pay off your loans. Stick with the minimum payments. That $7,000 is your emergency fund and you know you have a big emergency (job loss) coming up.

Second, I鈥檇 at least get it in a savings account so that it鈥檚 earning a little bit of interest, but I wouldn鈥檛 put it at risk (in stocks) or lock it up (in CDs). Keep it liquid and safe.

Finally, starting a business right now depends on the business. If it has low startup costs and a clear path to profitability, sure. However, few business plans have that. If you don鈥檛 have both things with your business plan, I would get my personal finances in better shape before launching a business.

Q6: Low-yield savings account
After a relocation for a new job and a few medical issues, my savings account has all but disappeared. Expenses eat up almost all of my monthly paycheck, even though I have a good job with a good salary. My question for you is, where can I put some extra money aside every month that will give me, and pardon the pun, the biggest bang for the buck? My current savings account only kicks back .25% every month. I am hesitant to purchase CDs, because with all the ordeals I鈥檝e been through lately, I realize that I need this money to be available to me in case of emergency. However, I understand that I may not be taking advantage of the highest-yielding savings account that I could be, and would like to look into other options.
- Kristin

There are many savings accounts out there that earn a much better rate than 0.25%. However, you鈥檙e going to struggle to find one that offers a rate above 1.5% without some strings attached (such as the rate being for a short promotional time only or the account only being available to people in certain areas or a minimal balance requirement).

What鈥檚 the difference between the two rates? Let鈥檚 say you have $1,000 to save. The 0.25% account will earn you $2.50 a year. A 1.5% account will earn you $15 a year. That鈥檚 $12.50. It鈥檚 not going to make you rich.

As long as that鈥檚 clear, I recommend doing some rate searching. The Simple Dollar has a page that . If you find an account that seems appealing to you, I鈥檇 research that account a bit using Google to make sure the bank is a good one with strong customer service.

Q7: Self-employment and debt
I鈥檓 30 years old and largely self-employed (read: irregular 1090 income), with about $4,000 in 401k from a previous retail job that I haven鈥檛 contributed to in years, and about $22,000 in consumer debt (over half of which is from an extremely stupid 鈥渂usiness鈥� move). I live very frugally and want nothing more than to pay off the debt as quickly as possible. Would it be a good or bad idea to pull money from the 401k to help pay off debt? I鈥檓 not contributing to it 鈥� and probably won鈥檛 鈥� until the debt is gone and I have a few months鈥� worth of living expenses in savings.
- Trevor

Just because you鈥檙e not contributing to an account doesn鈥檛 mean it鈥檚 a great idea to empty out the account. I would leave that money where it is.

Furthermore, you鈥檙e already on a bad track when it comes to retirement savings. At age 30, you should be approaching somewhere between half a year and a year鈥檚 worth of living expenses in retirement savings.

I don鈥檛 know the interest rates on those pieces of consumer debt you have, but I would first get a small emergency fund into a savings account ($1,000), then I鈥檇 tackle that fund by interest rate. If everything is below 10% or so, I鈥檇 start saving for retirement even if there are big debts left.

Q8: Emergency fund use
I have a question about the emergency fund. We used to have one. We have a lot of debt and eight children and my husband got laid off at Gateway several years ago so we went from a 60,000 plus a year job to nothing for more than six months to a 20,000 a year job to my husband not being able to work more than twenty hours a week(muscular dystrophy) and making less than 8,000 a year. Thank goodness we had savings and we were approved for disability. I have thought about looking for a job but taking care of a disabled husband and eight kids while homeschooling is pretty much a full time job. We had an emergency fund but never got beyond that on our plan to get out of debt and now that we have had hospitalization and major car repairs and so on we have no emergency fund and no savings so we started not paying all our bills which just leads to penalties and fines and a bigger hole. Once you have a certain amount in your emergency fund should you be funding another one for when you use it or pay it back after you use it. Is this what your living expense thing is for?
- Laura

Yes, your first step should always be to rebuild a small emergency fund, up to about $1,000. That amount is enough to handle many emergencies that a family might face.

However, if building that emergency fund is causing you not to pay your bills, then you need to look at a different approach. Something has to be cut from your spending or you鈥檙e going to go bankrupt. Spending more than you鈥檙e bringing in is not sustainable.

An emergency fund and a debt repayment plan are useless if you have more money going out than coming in. Something either has to be cut or there has to be more income coming in.

Q9: Psychological trick with online shopping
I just wanted to share something I鈥檝e recently discovered. I鈥檝e gotten hooked on Etsy; I love looking through the jewelry. Of course, my wallet wouldn鈥檛 appreciate it if I bought everything I liked. So instead of buying, I add the pieces I like to my favorites. By doing that, I know I won鈥檛 鈥榣ose鈥� the one I like and have to worry about finding it again. It also gives me a little bit of the good feeling or high you get when you buy something for yourself, except I鈥檓 not actually spending any money. Of course, I can always go back later and buy one or two of those pieces or decide I don鈥檛 want them. It鈥檚 really helped to keep me from overspending.
- Charlene

I do this exact same thing, both on Etsy and on other sites. If I see an item I want, I add it to a 鈥渨ish list.鈥�

I find it does the exact thing that Charlene describes: it takes the edge off of the immediate desire. I can also return to those 鈥渨ish lists鈥� at a later time and determine if it was a 鈥渨him of the moment鈥� desire or something I actually have a use for.

Often, my wife will check out my 鈥渨ish lists鈥� on various sites that I frequent and use them as a source for gifts for me at holidays and such. I often forget the things I鈥檝e put on those lists, so the gifts are almost always a pleasant surprise.

Let鈥檚 just say whenever I find myself in the kitchen section on Amazon, I usually wind up adding a thing or two to my list.

Q10: Employer bankruptcy and 401(k)/403(b) status
My former employer has filed for bankruptcy. While it鈥檚 not been determined by the court whether or not they are allowed to file nor which type of bankruptcy they are allowed to file for (Chapter 7 or Chapter 11鈥揺ach with different implications for their union and nonunion employees), I wondered if this could effect the 403b account I had with them. They didn鈥檛 contribute a match to it while I was an employee, it was all my money. The fund is through Vanguard. I left it there because I didn鈥檛 know what else to do with it and I know Vanguard is a good institution. Currently, I have TIAA-CREF through my employer and TIAA-CREF made it sound like they could easily get those funds for me (I talked to them prior to this bankruptcy activity). Do you think I could lose my 403b money in Vanguard because of this bankruptcy? What are the positives/negatives in putting all my 403b money in one place?
- Suzanne

You shouldn鈥檛 lose a dime of the money in your 403(b) because of the collapse of your employer. The money in that account is yours and yours alone. The account was merely provided to you by an arrangement that your previous employer set up. Just because that employer is bankrupt doesn鈥檛 mean anything about the investment house.

If you鈥檙e concerned about the stability of the investment house 鈥� which you should have no reason to be in this situation 鈥� you can take out the money, but it鈥檒l be taxed as regular income plus an additional 10% tax hit. Generally, that鈥檚 not worth it.

I鈥檇 just stay put with everything if I were you.

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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