海角大神

Reader Mailbag: More Time for Reading

I find that, whenever I get busy with things in my life, the first thing I cut out is the hour or two a day I spend reading. If I do that for a few days, I begin to intensely miss it.

Just yesterday, I was talking to a friend of mine who鈥檚 a stellar athlete. He expressed to me the exact same thing about training 鈥� if he skips a couple of days due to personal issues, he REALLY misses his daily hours in the gym.

Exercise your body, exercise your mind, I guess.

I鈥檝e always been very financially responsible and rather frugal. I might occasionally allow myself to purchase a bottle of wine at the end of a week or a new book once a month or so, but I鈥檝e never been a spender. I very much believe that I鈥檇 rather struggle (not that my husband and I really struggle) now and relax when I鈥檓 older.

However, the last year has brought considerable change in my attitude. In the last year, [my family has experienced several tragedies]. Due to these things, I鈥檝e become a much more in the moment liver, than living for the future. I鈥檝e spend quite a bit more money lately than I ever have before. I鈥檓 not spending out of control or over our means, but I鈥檓 still concerned.

I had such a tight string on my wallet for long it felt good to just buy stuff for the first couple of months. But now I鈥檓 afraid I鈥檓 going to fall into some kind of spending spiral. I would like to find a balance between incredibly frugal and lightening up a little bit. I don鈥檛 know what tomorrow is going to bring I don鈥檛 want to live entirely in the future any more. I need to enjoy the life I鈥檓 living now too. Do you have any advice?
- Dana

I edited Dana鈥檚 question a bit to eliminate some of the more personal elements, which weren鈥檛 really relevant to the issue at hand but might be embarrassing if someone she knew were to read the question.

I don鈥檛 see anything to be concerned about in your email, Dana. As long as the things you鈥檙e spending your money on in the now are things that are genuinely important to you, there鈥檚 no problem with spending money today.

Of course, you should always keep a few basic principles in mind. Even if you鈥檙e spending more than before, you should still strive to spend less than you earn 鈥� keep that as a firm cap. You should also reflect on the things you鈥檝e spent money on to make sure that they鈥檙e bringing you genuine happiness.

From your email, you鈥檙e clearly already doing the reflecting, and it seems as though you鈥檙e spending less than you earn. All that鈥檚 happening is that your values are shifting a bit due to changes in your life 鈥� and that鈥檚 completely normal, even healthy.

We have $5800 in a money market account for savings. After a recent look at that account, I noticed that it鈥檚 returning 0.5%. Obviously, I want to improve that rate of return. I鈥檝e contemplated a CD ladder, but CD rates at my credit union are well below the return I get on my checking account (with very simple stipulations to meet) that gets me 3%. Is there any reason to not move this money into my checking account? We have another $4000 in savings in the checking account currently and don鈥檛 have a problem with keeping the mental separation of savings vs. spending money being in the same account.
- Joseph

The entire purpose of a CD 鈥� and thus a CD ladder 鈥� is to earn rates that exceed what you can get in your checking or savings account in exchange for losing some liquidity (i.e., you can鈥檛 just remove money from a CD at will without paying a penalty).

If you鈥檙e earning more in your checking account or savings account than you can earn with a CD, then you shouldn鈥檛 have that money in a CD. It鈥檚 earning less (a negative) and you have less access to it (a negative), with no corresponding positives.

You鈥檙e doing things right.

I have been reading a while and looked around a lot on the 鈥渟hould I cash out my 401k to pay off debt?鈥� question. I鈥檓 still stuck as to whether I should or should not. I have reduced my expenses, stopped using cards, have a $1,000 safety fund/savings, but still have $18,851 in credit card debt. I am not depositing in to my 403b now so i can use that to pay down debt, but at this rate, it looks like 5 years for all of it. I have a 401K from an old job valued at about $11,380 right now. I was thinking about waiting till it鈥檚 at about $12k, that way, after tax and penalty, I would have enough to pay off one card, $7791 at 19.99% ! and then snowball the other card payments from highest interest down and that would take overall two years (or less depending on refunds etc that could be applied). I鈥檓 in a better paying job now and employer is putting a tiny amount in to 403b even though i am not contributing right now. I am 32 yo, have a condo and car payment, and once credit card debt is paid off (about 500 a month), i could put a lot into savings, start an IRA, and resume 403b contributions. I guess I just want to see some more rapid progress on paying off this debt, but am I betting my future by cashing out the 401k?
- Christopher

If I were you, I would not touch the 401(k) and I would also start contributing more to the 403(b), even if it adds some time to the debt payoff.

Why? You can never get those contributions back into your retirement plan. If you take that money out of your 401(k), you have permanently hindered your retirement. The only way to approximate it is to contribute quite a lot extra to your 403(b), but that would be even later, after your debts are gone, so it would require a lot of contributions.

In fact, I would contribute to my 403(b) up to the top of the employer鈥檚 match, starting right now. Again, you can鈥檛 ever get this contribution opportunity back 鈥� it鈥檚 free money that your employer is handing you that you鈥檙e turning down right now.

Yes, your credit card debt might take a little longer, but a 20% loss on your credit card interest rate is well worth a 100% gain on your 403(b) contributions from the match.

My husband and I are trying to decide when we should start a family, he is 28 and I am 27. One of us plans to stay home with the baby so we need to be able to live off of one income. I am a registered nurse and he is a Commercial Truck driver with a class A. The issue is we have debt and need to fix our house up, our current plan we would have this done in 2 1/2 years, 3 1/2 and we could have no mortgage. We are starting to feel this is too long to wait to try to start a family. Total income 2009 $90,000, debt: CC $4500 9.8%, car $14,000 7.8%, student loan $24,000 5.5%, Mort. $42,000 6%, about $15,000 needed in home repairs. In 2009 we paid off $12,000 in CC debt and put $5,000 into our home. We both do 6% of our income to 401K, emergency savings is $2000, and I am furthering my education and we are paying cash for it. I am starting to feel that we are overly preparing to have a family. Any thoughts?
- Lindsay

I think you should move forward with your family plans when you鈥檙e sure you can make it financially after having the child. For you, this means not only adding the child costs to the equation, but it also means one of you staying home with the child.

You should spend some time planning out exactly what will happen in that case. You mention that you鈥檙e getting further education (to be a nurse practitioner, I鈥檓 guessing?) 鈥� if you鈥檙e going to be the one that stays home with the child, cut that expense right now.

It鈥檚 also worth noting that even when you decide to go forward with trying to have a child, that child won鈥檛 arrive in a stork tomorrow. Even if you conceive almost immediately, you still will have most of a year before you lose one or the other of your incomes.

My suggestion? Right now, make up a very detailed plan for how you will do things after the child is born. How much income will you have? Will you be able to cover the bills? Who will stay at home with the child? How many years will that person stay at home? Some of these questions may alter what you鈥檙e doing with your money and time right now 鈥� if you鈥檙e staying at home, for example, you may not want to invest a lot of money into furthering your education at the moment.

If it looks like you could make it with the way things are right now, then I鈥檇 start trying to conceive. If it doesn鈥檛 look possible, I鈥檇 wait a bit longer, then re-evaluate.

There鈥檚 a lot of conflicting information out there and I鈥檓 curious what you would do. When I go on vacation I often rent a car and never know what to do about insurance. I don鈥檛 own a car at home and therefore don鈥檛 have any auto insurance policy for myself. I have the option of getting non-owners auto insurance from my insurance provider for $20/month but, based on the explanation of the coverage, my understanding is that all that covers is medical and damage liability if I hit someone else. I do have a visa that could presumably provide collision and damage insurance beforehand but doesn鈥檛 cover liability for another person if I collide with them. However, I鈥檓 not ready to pay $240/year so that I have that coverage for the 2x a year I drive a car. What do you suggest I do when I rent a car? Just use my credit card coverage? Get one month of liability coverage (if that鈥檚 even an option)? I paid an arm and a leg last time I rented because my parents and boyfriend freaked me out and demanded I get it but from my research they don鈥檛 understand what sort of coverage I need either. What would you do in my situation?
- Arlene

Most likely, you won鈥檛 be able to buy that policy on a month-by-month basis. Most policies are drawn up to cover six months or a year and your monthly payments are fractions of what you owe for that policy.

My first suggestion would be to look at the insurance offered by the rental companies. Typically, such policies are redundant for people who have auto insurance themselves, but they may not be redundant for you.

I would also take a look at what exactly your credit card offers in terms of coverage. It seems that your card just offers liability coverage, so I would look at the company you typically rent from and get quotes on insurance for the passenger and rental car. This will probably be in the ballpark of $10-15 a day, so this will save you money if you rent only for short periods, but if you rent for two weeks a year, it won鈥檛 be much of a savings.

If you have a well-stocked emergency fund, you may want to consider just having liability coverage (as provided by your card) and calling it good enough. After all, if you鈥檙e not driving the rental too much, your risk of a major accident is relatively low 鈥� and that鈥檚 what we鈥檙e talking about here, risk.

I have been working as a software developer for around two years. It鈥檚 a steady job and pays fairly well and I do enjoy it at times. I find though my concentration span really holds me back from enjoying this more and from progressing in my programming ability. Sometimes I can almost do a full day doing no work. I just can鈥檛 keep focus long enough.

At first I wondered if perhaps this job just doesn鈥檛 interest me enough (i.e. perhaps lack of concentration is due to lack of enjoyment and not vice versa) but looking back this is something that has plagued me all my life and I think it really held me back at school. I even struggle reading a couple of pages of a novel (that I find interesting) without having to go back and read. my mind just starts thinking of other things even while I鈥檓 saying each word in my head!

I haven鈥檛 received any warnings about the lack of work I sometimes produce (yet) but would like to get on top of this so I don鈥檛 stay at the same level of ability all my life and narrow my future horizons.

I have recently pondered the idea of hypnotherapy but to be honest I鈥檓 a little scared of this. Do you have any suggestions to improve my concentration span?
- Ben

I鈥檝e thankfully never really had this problem. In fact, I tend to have the opposite 鈥� when I bear down on a task, I can lose all track of time and even reach the point where I literally don鈥檛 hear people around me.

Anyway, one of my mentors once suggested a five-prong plan for maintaining concentration. He used the word FOCUS as an acronym for it. I鈥檝e seen variations of it floating around online, but here鈥檚 how my mentor defined it.

Five more means that if you鈥檙e doing something and feel your focus wandering, always challenge yourself to do five more. Five more pages. Five more minutes of coding. Five more emails. It鈥檚 like endurance training for your mind.

Only the thing you鈥檙e working on means that you should try to look at the task you鈥檙e doing with fresh eyes if you find your mind wandering. Look at what you鈥檙e doing and ask yourself if you鈥檙e doing it well or why you鈥檙e doing it. It often refreshes the task.

Complete the little things now means that if you have a task you鈥檙e putting off, start working on it immediately. This helps with concentration because a task that鈥檚 been put off is a task that鈥檚 weighing on your mind.

Understand the details means that, instead of thinking about the big picture of the project you鈥檙e working on, you should try to break it down into the smallest detail you can, then just focus on that detail. It makes the task seem much shorter and manageable, which again helps with concentration.

Silence means that you should cut off interruptions. Unplug your phone. Close your web browser. You can even go so far as to rest your face on your hands and cup your hands around your eyes so that they function as peripheral blinders.

Good luck!

I鈥檝e been reading The Simple Dollar for about a year now and really enjoyed the series you did a while ago on cooking. Quick question, I鈥檝e tried Eggplant several times (never as Eggplant Parmesan) and not had much luck, however I found a recipe for Eggplant Parmesan and wondered if you鈥檝e ever attempted to cook it at home. The particular one I found says to peel the eggplant and I鈥檓 wondering if that鈥檚 the reason all my other eggplant attempts have failed. Any thoughts?
- Shawna

You didn鈥檛 really specify what the problem was with the eggplant. For the most part, the peel makes little difference 鈥� it鈥檚 mostly a matter of personal preference, like a potato peel (I prefer them, myself). My guess is that the problem is not with the peel, but with the sweating.

Sweating? Try salting the outside of your eggplant about a half an hour before you tend to use it. Just take some table salt and rub it on the outside. When you鈥檙e ready to use it, you鈥檒l find that the outside of the plant is now moist with some very salty and bitter water. Rub the water off and slice it.

I don鈥檛 know if that鈥檚 the solution for your problem, because I鈥檓 not entirely clear on what鈥檚 wrong with the eggplant when you cook it. I鈥檓 just assuming that the problem is bitterness.

It may also be that you simply don鈥檛 like eggplant, for which there is no real cure other than just trying it in different ways on an irregular basis.

My husband and I are in our late 20s and don鈥檛 yet have any kids but are thinking about it 鈥� we鈥檇 like to have a baby in the next year, but obviously there are no guarantees on timing. I鈥檓 currently making about $45k and my husband $75k; when we have a baby we plan on me staying home, so we鈥檒l be losing that income.

We already have an emergency fund with 6 months of expenses in it, we鈥檒l be paying off my student loans in May (that bill had been about $100/month), and after that we鈥檙e debt free except for our house! We currently have a budget excess of about $2500/month (give or take depending on the month) that we鈥檝e been putting toward my student loans, and I am on the hunt for my next financial goal to knock out. The only retirement savings we have is a 401k for my husband that we started this year, putting 4% of his salary into it. Looking ahead, I think we鈥檒l have about $20k extra to play with this year, and this is where you鈥檙e advice comes in. We are definitely going to open an IRA (undecided as to traditional vs Roth) and with the max contribution of $10k between us for the year, that leaves an unaccounted-for $10k or so.

Option 1: We only put 10% down on our house when we bought it almost two years ago, so we鈥檙e paying PMI of about $60/month. We have $16k left to get to the 80% mark where we can get rid of PMI (and potentially adjust our monthly payment to reflect the new principal). We could put the other $10k this year toward our mortgage principal and get the last bit paid down early next year, so provided we don鈥檛 have a baby and drop income in the meantime, we could be PMI-free by next year this time.
Option 2: Alternatively, since we鈥檒l have a more limited budget when we go down to one income, we could put the $10k in savings to put into the IRA in 2011. We鈥檒l be able to save something when we have one income, but while I鈥檓 not sure what our budget will look like with a baby, I鈥檓 almost positive we won鈥檛 have $10k a year to put toward retirement (beyond the 401k).

That鈥檚 the scoop 鈥� thoughts?? Also, input on whether to do traditional IRA vs Roth IRA would be helpful, I think. We鈥檙e in a very blessed and pretty fantastic stage of life right now, and really want to take every advantage that we can while we can.
- Marisa

As I mentioned above, the first thing you need to do before considering going ahead with a child is to make a post-baby budget. Spend some time really contemplating how your life will look at that point. Is one of you going to stay home with the child? What will child care costs be like? Do some research and find some real answers here, then figure out what things will look like financially for you. I encourage you to estimate high, because it鈥檚 going to cause a lot less problems than estimating low will.

If you make that budget and decide that things look doable but close post-baby, put that $10k into savings for now. It may wind up being a 鈥渂aby emergency fund鈥� as you find that there are lots and lots of baby expenses you didn鈥檛 consider. If you get through 2011 without a child, then contribute to the IRA.

If you make that budget and decide you鈥檙e good to go with a fair amount of room to breathe, I鈥檇 sink it into the mortgage, mostly to get you below the PMI mark, which will make breathing even easier for you.

In the two years after graduating college, I learned a fantastic lesson about living on credit cards (badidea!) and living without health insurance, and had to go through CCCS to pay off the impressive debt that I accrued鈥� About $20k in credit cards and $10k in medical bills. During this time, I had to sign a agreement with CCCS that I would not use any credit card until my debt was paid off.

Now I鈥檓 28 years old, single, working a job with great medical insurance, have paid off those medical and credit card bills and have not used鈥� or even opened鈥� a credit card since I was 22 years old. I鈥檝e been putting aside a little money each month into an emergency fund and into retirement, but otherwise I鈥檓 basically living paycheck-to-paycheck.

Understandably, I have a mild phobia of opening and using a credit card, even though I鈥檝e matured and learned a lot since my wild (stupid) days. However, it seems like a credit card would make my life a lot easier at times鈥� like when I have to pay upfront for a business trip in which I will be reimbursed, or if I loan a friend money and I am scraping by at the end of the month.

Would you recommend that I open a new credit card and pay it off each month? And if so, what advice can you give me about going back into the world of credit?
- Jamie

If you鈥檙e truly living paycheck to paycheck, the first thing you need to do is either increase income or cut spending (or, ideally, both). Perhaps you need to change your living situation or your energy consumption or your food consumption (do you constantly eat out?). Maybe you can get a second job. Whatever it is, you need to be spending a bit less than you earn or you鈥檙e always in danger of getting into financial trouble when something unexpected happens 鈥� and it will happen.

If I were you in this situation, I would get an extremely focused credit card that you use for just one specific purpose so that you鈥檙e not tempted to use it outside of that context.

The idea that comes to mind for me is a credit card (Visa or Mastercard) offered through a gas station chain that you frequently use. Sign up for one of those cards, but use it ONLY for gas. The giant gas chain logo on the card should be a strong reminder of that. Then, at the end of the month, pay off the bill in full.

This simple step will allow you to re-establish your credit without opening the floodgates. Just keep that card for one purpose and one purpose alone.

I would not use it for any other purpose 鈥� don鈥檛 鈥減ay up front for trips鈥� with it or anything like that. Use it simply as a means of improving your credit and maybe reducing your gas costs a bit.

My husband and I own a reasonable home in Pennsylvania, and are hoping to move to Maryland to be closer to my family in the next couple of years. We also just welcomed our first child about 7 months ago. I am a full-time working mom and am growing weary of being away from my home and family 10 hours a day, but my family relies on my income (which is significantly higher than my husband鈥檚: $56k to $38k) and my health insurance.

My question is sort of two-fold:

(1) Is it selfish of me to want to stay home and care for my family? I have done contract work in the past and could make up a great deal of my salary, but not the health insurance, which is much more expensive through my husband鈥檚 job and very limiting in its offerings.

And (2), would it be a bad idea to rent for a while once we move to Maryland in order to save money? Housing is substantially pricier there, so we were planning to build on family land, but that could take a while since my husband would do much of the building himself, while also working a full-time job.
- Jen

(1) It is not selfish of you to want to stay at home with your child. Having a child is an intensely personal and emotional thing and, for many people, staying at home is something they strongly desire simply because of the emotional attachment and quality of care that they would provide to the child. It鈥檚 your child. You love that child. Wanting to care for that child and protect it is completely normal.

(2) It is never a bad idea to rent housing, particularly if you don鈥檛 plan to live in the house for seven years or more. It鈥檚 the first years of the mortgage that are the most painful ones 鈥� most of your mortgage payment goes towards interest and the power of compound growth on your home鈥檚 value really hasn鈥檛 had time to work yet. If you can find a good deal renting, renting absolutely should be on the table.

As for the building, a close friend of mine did that (and I鈥檝e asked him for a guest post to discuss it). It can work and it can save a lot of money, but you really need some serious passion about carpentry and plumbing and electrical work to make it happen.

Good luck.

Got any questions? Email me or leave a comment and I鈥檒l try to answer it in a future mailbag. Please note, however, that I get many more questions than I can answer in any sort of reasonable mailbag length.

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