What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Media mail question
2. Money and teenage son
3. Loan payoff and emotional crisis
4. Rich Dad?
5. Figuring out savings goals
6. Too many goals
7. How poverty taxes the brain
8. Handling promotion
9. Roth IRA or graduate school
10. Brown bag problems
Whenever I go to an estate auction, I have mixed feelings.
The “bargain hunter” side of me is excited because I see bargains of all kinds. There are almost always a few things that no one else there can really figure out a value for, so sometimes you’ll find things worth hundreds of dollars for a buck or two. I’ve flipped things like that before.
On the other hand, the “human” side of me feels sad. An estate auction is usually the end result of some kind of family tragedy. Although an estate auction is a normal process in that situation, it still feels a touch on the grim side to me.
Q1: Media mail question
Trent – can you explain Media Mail? I can’t seem to get that when I go to the post office to ship catalogs. The people at the post office act like that hasn’t been around in years.
Media mail is absolutely a service still offered by the United States Postal Service. Here’s the section of the USPS website.
I find media mail to generally be the best option when sending books through the mail and often other media as well. There are some restrictions on what can be sent, but books seem to be restriction-free.
I’m not sure what’s going on at your local post office if they’re not letting you use media mail.
Our son is sixteen. For the last several years, we have given him a $20 a week allowance that gets docked if he fails to keep up with certain chores. We make him put half of it away for college and the other half he can spend as he wishes, which is usually on trading cards.
We are wondering if we should stop the allowance and encourage him to get a job. On the one hand, he is involved in a few extracurriculars that he spends a lot of time on and he gets good grades. On the other hand, he doesn’t seem to have any motivation to work hard for anything.
What do you think?
It really depends on what values you’re still hoping to impart as your son prepares to leave the nest.
If you attempt to push your son to get an after-school job, you’re likely pushing him out of an extracurricular activity or two. Yes, he’ll be earning some money which can teach valuable budgeting, but what is he saving for? What goals would he achieve with this?
What you should really ask yourself is whether the extracurricular activity or two he would drop is more valuable to his future than the job. I can’t really answer that for you because I don’t know enough about your values, about the activities he’s in, and about his college aspirations.
Q3: Loan payoff and emotional crisis
Here’s my situation: I owe about $25,000 in student loans. I also recently received about $25,000 from a payable-on-death CD (my understanding is that this is not taxable?) from my grandmother. She also left me another ~$14,000 from her 401K (my understanding is that this is taxable). I’m also her personal representative for the estate, meaning I get a commission (5%, I think).
I was planning on paying off my student loans and putting the majority of the rest in savings. And then, I was laid off. I have a small severance and will be getting unemployment and I’m obviously looking for work (it’s only been a week). I’m also in a supportive, committed relationship and have a strong support system.
I’m 25 years old with a journalism & mass communications degree. No kids, no debt other than the student loans. I’ve toying with the idea of going back to school, I’m wary of student loans again.
My questions: Should I still go ahead and payoff my students loans as planned? If I were to go back to school would it be better to use the $25,000 and keep working to pay off my loans or pay the loans off and try for more financial aid, etc.? How can I make sure to proceed cautiously/rationally and not out of emotion — whether it be panic with the job loss or grief over my grandmother or anything else?
I think you have the tax concerns correct, but I’d still check with a tax professional before charging ahead.
If I were you, I’d keep an emergency fund of perhaps two months of living expenses, then apply the rest to your student loans. If there’s money left over after that, I would put the rest into savings, assuming that you would use it for education.
I would not put the money into a 529 college savings plan or anything like that until I was certain of my future plans. If I were you, I’d just sit tight for a while and figure out what’s next for your life before making other financial moves beyond the emergency fund and the debt.
Regardless, freeing yourself from debt is a solid move and I’d do that first.
Q4: Rich Dad?
I read an old review you wrote about Rich Dad, Poor Dad. Given the book’s strong theme of self-sufficiency, I was surprised you were so negative about it. While no book is perfect, I think it really gives a sense that you can do it yourself.
It sure does, but so do a lot of books. Most personal finance and entrepreneurship books ooze with that “you can do it!” sensibility that Rich Dad succeeds with.
My issue with it is that it routinely insults frugality and espouses driving Ferraris as some sort of success symbol and that the path to success described in the book is extremely vague and rather unrealistic, too.
Robert Kiyosaki is a very good marketer and salesman, but the book itself… there are just a lot of entrepreneurship and personal finance books that convey the message it’s giving in a much more consistent fashion with a much clearer plan for success.
Q5: Figuring out savings goals
I am a 27 y/o gal from NJ. I have been working at a job that is grant funded and is supposed to end in February. however, there are no benefits, including 401k. I want to be able to start putting money aside for retirement but I am pretty clueless when it comes to Roth IRAs, regular IRAs, etc.. I know you trust Vanguard with a lot of your monies, but I don’t know what is the best option for me to do. I am trying to save for a wedding and a house (hopefully within a few years) with my fiance and I only have a few bills (however, the student loans are the killer – about $80,000).
So its $80,000 for the loans (currently paying around $800 a month), $5,000 left on my car loan (currently paying $351 a month – but have been thinking of just paying it if full although that only saves me $100 and gives me another year to pay it), and credit cards we usually have about $1000 a month (just to gain rewards – but we pay it off in full every month)
I have about $20,000 in an ING account, about $10,000 in a checking account, and about $600 in savings
I’m not sure how to allocate my funds to save for retirement – the house – and the wedding.
The first thing you need to do is clearly budget for the wedding you intend to have. Go through every item you’re going to be spending money on and figure out what it’s really all going to cost.
Then, when you have that total, ask yourself whether or not that amount is a real investment in the future you’re going to have with your husband. A ceremony is important, don’t get me wrong, but many of the elements of a wedding are forgotten within a week. Focus on what’s really important, not on spending money on the details.
Once you have that figured out, talk to your husband-to-be about retirement savings. You guys should be putting away 10% of your gross income toward retirement – ideally in accounts where half of the money goes into one with your name and half into one with his name. Once that’s secure, save hard for that wedding. Don’t let the wedding stick any more debt into your life. If you can reach your wedding savings goal, then focus on extra debt payments.
I sat down recently as you suggested and started making a list of all of the projects and things I wanted to work on over the next few years. The list was staggering. When I actually went through that list, I realized there was no way I was ever going to do all of this stuff.
I feel almost locked up by the list. Whenever I look at it I feel overwhelmed.
Rank the list and simply cross off the bottom half of them. Better yet, cross off the bottom 90% of them. I’m serious.
A list of projects is invigorating if it fills up your time but it’s manageable and you can feel like you’re moving forward on all of it.
Just write all of the projects down on notecards, one card per project. Then sort that stack of cards. Keep the top five or ten. Trash the rest. Focus all of your energy on the ones that are left.
I agree almost completely with what’s being said here. If we spend our time worried about meeting our basic needs, we don’t have a whole lot of mental energy left for succeeding in other ways.
The only way to escape from it that I can see is to focus everything in your life on digging out of that hole. You’ve got to drop every possible distraction and focus on a gameplan that removes you from the edge.
That’s hard. That’s incredibly hard. I think that’s why many people struggle to escape from financial holes.
Q8: Handling promotion
Recently, I received a promotion at work. In truth, I just got more tasks dumped on my lap with a few menial ones removed from my workload. I have a better title. I have the same pay.
As you might guess I am frustrated. I feel like I should talk to my supervisor about this but I am worried about causing waves. I do not want to be targeted for removal during any future layoff rounds. What would you do?
If I were you, I would talk to the highest person in the company’s hierarchy that you feel you can talk to. Ask them if it’s possible to have lunch with them.
When you’re having lunch with them, simply ask that person for career advice. Tell them you feel like you’re moving forward in terms of career skills and you want to start thinking about what the next step is. What should you be working toward?
Make it sound like you’re hungry to achieve more at work and also that you’re eager to explore the rewards associated with that work.
If you sit there passively, you’ll get passed over. You’re right in that complaining doesn’t help, either. Instead, be proactive and ask for suggestions and help and figure out what you can do to get the increase in pay that you want.
Q9: Roth IRA or graduate school
I work full time, making about $30,000 a year, and can save anywhere from $500-$800 a month (depending on expenses, number of work days in the month, etc.) I was recently accepted into a MRED program that will probably cost about $6,000 total each quarter for part-time classes and books. I also opened up a Roth IRA this year (my employer is a small nonprofit, and we don’t have a retirement plan), with the intention of funding it fully each year. I’m 27, so while I do have a while to save up, I want to start sooner rather than later.
I applied for federal loans for the full cost of school, just in case, but I can choose to take out a smaller portion each quarter and pay some upfront, with no penalty.
My question is, am I better off putting the max in the Roth IRA and taking on more debt, or trying to push a larger amount toward school and having less debt when I graduate? The program is 2 1/2 years, and will probably be about $60,000 total. There are a bunch of scholarships available, but I can’t apply for them until this February.
Also, I have no other debt, since I was lucky enough to have my parents make sure my undergrad was taken care of. I have an emergency fund with about 6 mo. worth of expenses, and also save for irregular expenses like car repairs, medical copays, etc, outside of the $500+ monthly savings figure.
As always with decisions like this, the “perfect” answer hinges on unknowns. Will you finish the degree? Will you get a good salary? Will the stock market go up or down? Those are all unknowns. The best you can do is make a principled guess based on the information you have now.
For me, the decision would hinge heavily on what your earning expectations are after earning this degree. What is the average income of someone who has this degree?
If you’re not going to notice a major increase in income, that means that cash flow is going to be a bigger issue for you. In that case, I would minimize the debt and hold off on the Roth IRA.
If you’re expecting a big bump in income, that would mean that cash flow will be less of an issue. In that case, I’d contribute the max to my Roth IRA each year, get a bit more student loan debt, and then focus on repaying it quickly when your income bumps up.
Q10: Brown bag problems
I would love to start “brown bagging” at work. People just mostly eat at their desks anyway. The only problem is that the work refrigerator is notorious for being raided by other people. If you bring in lunch it won’t stay there. Suggestions that don’t involve something dumb like putting a lock on my lunch and chaining it to the fridge’s wire rack?
If I were you, I’d invest in a cooler and an ice pack. Pack your lunch in there and take it to work. Stow it under your desk and pop it out at lunchtime.
You can keep the pack frozen by putting it in your freezer at home when you get there and putting it back in the lunch box at the start of the next day.
This won’t help if you have people stealing stuff out of other people’s cubicles, but if your workplace has that type of atmosphere, I’d probably start looking for a new job because you’re going to have much worse problems down the road.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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 many, many questions per week, so I may not necessarily be able to answer yours.