Reader Mailbag: Tomorrow

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. Investment choices
2. Changing one’s mindset
3. Tea Party thoughts
4. Angry at myself
5. Thoughts on interest-only loans
6. Importance of debt-to-credit ratio
7. Free running music
8. Christmas gifts from fixed-income folks
9. Can I afford a house?
10. Consequences of Facebook de-friending

You can’t live a perfect day without doing something for someone who will never be able to repay you.
John Wooden

There isn’t a day that goes by in which there isn’t some sort of regret – something done wrong, something left undone. Yet each of us is given the gift of a new day over and over again, and we have the chance to try again and make it right. I can’t undo the past, but I can always try to make the most of the gift of tomorrow.

I am a 22 year old recent grad who is lucky enough to have no school debt and a stable income. I also have a large emergency fund that could take care of most problems that I would face. A few years ago I was given a decent sum of money from my grandparents that I used to set up my first brokerage account. Given my lack of knowledge and income at the time, I invested the money in a simple individual account at one of the online brokers. Now, however, I have a steady job and am saving about $1000 / month that I would like to go towards my retirement. Unfortunately my firm has a policy that you have to be an employee for a year to be eligible for the 401(k) matching program, so I wanted to start a Roth IRA in the meantime. The problem is I would lose money if I liquidated my portfolio in the Individual brokerage account due to the transaction costs. So, I guess my question is: Should I simply ignore the account I already have and begin purely funding a new IRA account with my savings? Or should I continue to use the individual account until the 401(k) kicks in? Any help would be great.
– Jeff

I’m guessing that the “individual account” is simply a normal brokerage account and not a Roth IRA or a normal IRA or any other tax-advantaged account.

If that’s the case, and you haven’t made investment changes in that account in the past year, I would liquidate it and open up a Roth IRA using the money. It sounds from your description like there will be a net loss on the account after the brokerage fees. Remember, such fees are tax-deductible.

The only real reason for an individual to have a brokerage account like that is if you’re saving for a specific long-term goal that’s not retirement, like a home you want to build in ten years or so (which is why I’m using one).

I am 23 right now, recently graduated from college with a well-paying job at a good company. I have a roommate who is in exactly the same situation as me (though he’s a year younger…but we work at the same place, and get paid the same amount) with two exceptions:

1 – I was fortunate enough to have my parents pay for my education out of their own pocket. Unfortunately, my roommate wasn’t so lucky, and he has a student loan payment that I don’t have.

2 – He recently bought a new car (before graduating) and has a car payment that I do not have.

We both are very interested in personal finance and I try to ‘coach’ him on things I feel comfortable about. I always encourage him to do his own homework and remind him that I’m not a finance expert, but he appreciates my feedback and opinions. I enjoy helping him out too, but lately I’ve noticed an underlying problem: he spends too much. We make fairly good money – enough that I never have to worry about if I’m going to have money to pay utilities or go out for a night on the town if I want. But since he’s got the extra expenses that I don’t have, he has less cash to throw around – that doesn’t stop him. Since we started working three months ago, he’s purchased some things that he admittedly can’t afford including some items that he’s returned to the store to get his money back so he can pay off his cards.

How can I help him get into the mindset of spending less, when he’s got such a consumerist mentality? He’s saving for his 401(k) but that’s it, he has no other cash at all on hand. He is living paycheck to paycheck, and when you’re making about $50K in Minnesota (not a super-expensive part of the country), I just don’t understand how he is at the position he is. Any tips on how I can give him some advice without sounding rude or condescending would be great.
– David

It sounds like your friend is very much living in the now, which isn’t exactly atypical for people in their early twenties.

I can speak from experience: when you’re freshly out of college and single, it can seem like you have the rest of your life ahead of you, so why not enjoy what life has to offer today and leave that stuff for “old people.”

That works only if you have no real goals for the future. Some people don’t; they literally drift from one thing to the next for at least some portion of their life. The problem is that eventually you begin to realize that the time you have for all of those dreams is shorter than you think – and you’ve already dug yourself a hole.

I think it’s very much a personal philosophy and personal maturity thing. The best thing you can do as a friend, I think, is to focus on goals. Where do you want to be in five years or ten? Tie that to what you’re doing now – your choices to not spend recklessly build up the path to that goal.

I know you’re politically involved, though you don’t talk about it much on Are you a Tea Partier?
– Shane

I am not a Tea Partier. There are elements of what could be described as the overall Tea Party platform that I don’t agree with for various reasons.

However, having said that, I consider the Tea Party to be an example of what is good in American politics, even if I don’t agree with the political solutions being offered. The Tea Party represents people who are genuinely interested in the political process and are working to make sure their voices are heard.

It’s easy to point to political divides in this country as a reason for why nothing gets done, but the truth of the matter is that the real villain is apathy. The large “middle” of the American political spectrum – meaning people to the left of the Tea Party and to the right of the Communist Party – is mostly apathetic. The only elections where you ever see more than 50% of voters turn out is the presidential elections. Midterm elections fall way below that. Local elections? A lot of them don’t even get 10% of the voters out.

Politicians talk in extremes to the left and to the right because that’s, frankly, where most of the activists are and the groups that produce the highest voter turnouts. They should be doing that – they’re talking to the people who are actually politically active. If someone is “talking crazy” but they keep getting elected, then that “crazy talk” is representing the people who bother to participate and bother to vote.

I might not agree with the politics of the Tea Party, but I do give them a big thumbs up for not being apathetic. They’re out there trying their best to be involved in the political process, which is something every American who cares at all about the future of this country should also be doing.

This last weekend, I gave into a bad impulse when I was out with my friends. I blew $300 in the blink of an eye without really thinking about it at all.

Today I’m just sitting around here [angry] at myself for doing that. That money could have paid the rent or it could have paid off some of my credit card debt.
– Tessa

Being angry at yourself for something you cannot undo is both a waste of time and a waste of energy. It is water under the bridge at this point.

Instead, focus your energy on something positive. Look back at what transpired and figure out what exactly went wrong that caused you to needlessly spend that money, then ask yourself what you can do right now to make sure that never happens again.

You can also take direct action to undo the financial damage. What can you do today to save some money and reduce some of that financial impact? Can you make yourself a brown bag lunch and save $10 on eating out? Can you turn off the heat or the air conditioning before you go to bed and leave it off until you come home from work? Can you simply stay home next weekend and watch a movie with friends instead of going out again?

It’s about the choices moving forward. Looking back does nothing but bring you down.

I’m a 28 year old IT professional, and three years ago I inherited about $65k from my grandparents’ estate. At the time I had about $20k in student loans outstanding, and $9k on my car. I promptly cleared both of those debts and also decided to use a chunk of my inheritance as a down payment on a house. Today, my only debt is the mortgage on my house (no credit card debt or anything).

I ended up buying a house for $265k and I put $15k down on it, leaving me with a $250k principle balance on my mortgage. My lender talked me into getting into an interest-only loan (first 10 years interest only), as this offered the lowest monthly payment (for the first 10 years anyways!) and I was pretty close to my ceiling. My lender presented this as a valuable option because if I planned to move within 10 years, I could sell before the loan readjusted after the interest only period. Or, if I thought I’d be making significantly more by the time the 10 years were up, I could afford the adjusted payments after the interest-only period.

For the last two years I’ve put the nice tax returns from being a home owner straight into savings, helping me to maintain a nest egg. In addition, I’ve also used some of the remaining inheritance money on renovations to the house which I feel are pretty significant. I added a bathroom and a walk-in closet, and also a roof top deck with gorgeous views of the Baltimore inner harbor and skyline. After all of this I still have about $20k in savings.

Anyways, finally getting down to my question for you. Sorry if I’m a little long-winded. I’m not comfortable in my interest only loan and have been trying to refinance into a conventional 30 year fixed mortgage. Since I bought the house in 2008, home prices have fallen and my house has lost value. Since I’ve paid down no principle, this puts me in a difficult position to refinance. I suppose I could have an appraiser come out since I’ve made significant additions to the house, and perhaps it would be appraised at more than what I have on the principle, giving me some equity to refinance with.

I’ve also been approached by companies about “restructuring” my loan, basically hiring attorneys to go to the lender and negotiate out of my interest only loan since the government frowns on these kinds of loans nowadays. I’m scared to do this though, as I feel like it might also be a scam.

How do you feel about either strategy? I’m very uncomfortable being in my current loan and want to get out of it ASAP for peace of mind. I love my house and the last thing I want to do is lose it. I still have plenty of time left before the readjustment, but it’s still looming in the back of my mind.
– Andrew

If you’re interested in restructuring your loan, your first step should be to your lender directly and see if there isn’t a restructuring that you can directly work out with each other. As you said, lenders are happy today to get such loans off of their books, so they are likely to want to work with you, particularly if you have a great payment history.

You are in the sticky position of having your home worth less than you paid for it. Your improvements may help in this regard, so a reassessment of the value might be in order. However, if you’re looking to restructure, you may want to hold off until you discover if their organization wants to do the reassessment.

Your best move in any regard, though, is to simply live lean and save some cash. Clearly, you love this home. Now’s the time to fight for it through your purchasing decisions. Live lean. Buy generics. Buy $2 wine from Trader Joe’s. Sock away your money for a down payment, for your mortgage adjustment, or for whatever the future may bring.

I just checked my Equifax credit report, and I am concerned that my debt to credit ratio is 78%. This is because the only credit I really have is my mortgage ($67,000 on original $70,000 loan), my car loan ($5,000 balance on original $7,000 loan), and a $6,000 revolving line credit card with a $0 balance. Even though I have very good credit history, with no late payments or anything else negative, I just don’t have much credit. I did not get my credit score, just the free report. So maybe I don’t need to worry. What do you think? Short of applying for more credit cards, what can I do to increase the credit available to me?
– Kevin

This is one of the tricky areas, isn’t it? The problem with a credit score is that the exact formula for calculating it isn’t made public, so we don’t know for sure how various things impact your credit rating.

From what I’ve read, in most credit score calculations, debt-to-credit ratio does not include your home mortgage. Note that this isn’t set-in-stone fact because, as mentioned above, groups like Fair Isaac do not reveal how scores are calculated.

In short, unless you need significant loans in the near future, I really wouldn’t worry about it. If you do need significant loans, seek out a firm that does manual underwriting on their loan products.

About ten years ago, I used to jog all the time with my Discman. For some reason, I gave up that routine, but I’m about to start up again. I have a pocket MP3 player that’s perfect, but I don’t have many mp3s to listen to. Do you know of any low-cost sources for good running music?
– Emily

The best sources I’ve found for free running music is podcasts. There are several podcasts out there that cater to this very need. Here are several of them:

Podrunner: (, )
fitMusic: (, )
TechnoSweat: ()
Power Music Workout: ()

Yes, most of this stuff is instrumental, but it’s often done at a fast pace that encourages you (quite strongly) to get moving. I find it easier to just get in the zone and lose touch with what’s going on around me if the music pushes me forward.

My husband’s grandparents send him a modest check for his birthdays and Christmas, which is terribly sweet, but he’s 34! We both feel very awkward about this – they’re senior citizens on a very fixed income, and it just doesn’t feel right to accept the money, but they mean well of course and we are not ungrateful – is there any way we can tactfully, graciously end this practice, or would the tactful, gracious thing be to continue to accept their generosity?
– Mandy

This is something that troubled me for years with my own grandmother.

After a lot of soul-searching, I finally came to a realization when I was having a conversation with her during a Christmas visit. She got a lot of personal value and joy out of giving me that small gift. It was something that she could still do for me, and during the year she could think that I had done something fun, just for myself, with it, and that made her feel quite good.

After that, I simply realized that it was her decision to do that with her money and that the best thing I could do is to simply respect her wishes. I would usually take that money, do something purely fun with it, then send her a note telling her about it and how much I enjoyed it. Those notes meant a lot to her, I think.

I am 22. I currently live in an apartment (lease expires at end of may next year). I am getting married next year in June (future wife graduates in December). I would like to be able to live in a house once we are married.

After putting enough money for a 401k match by my employer, I bring home about $1,500 biweekly (that’s with health and dental insurance already taken out). I should be able to have $20,000 or $25,000 next June saved up. At my current apartment, I pay $600 per month about $70-$100 for electricity. Other monthly bills include car insurance, phone, and cable Internet/TV. I can usually save about $1,000 of the $3,000 I bring home a month to be put into my savings account. I would like a $200,000 house. A quick look at mortgage calculators show me that the monthly payments for a 30-year mortgage would be about $1,000. But I know I will be paying a lot more for electricity/utilities/property tax, etc.

So my question is two-fold: Let’s say my future wife doesn’t have a job. Is this possible? I don’t think I would earn enough, but I would like your input.

Now let’s say my future wife does find a job after she graduates and is able to save $500 per month for the house payment. Is it possible then?

I know I may not have included nearly enough details, but what all do I need to consider during this?
– Tim

From what I’ve seen here, you could likely only pull off a single-income family if your stay-at-home spouse was deeply devoted to methods of saving money during the time when she wasn’t working and even sought out small amounts of low-income work that was flexible to her needs.

If your spouse does have work, you could likely pull off your plan, especially if your spouse is also thrifty in her choices and is able to contribute to the saving for a down payment.

The important thing, though, is that if you decide to get married, you completely combine your finances as soon as possible and then view your future decisions through that single combined pool of money, income, and spending. Spend plenty of time making sure you’re both on the same page and you’re both coming to the same conclusions – and if you’re not, tend towards the more conservative option. Do that consistently and you’ll be fine.

You talk about using online tools like Facebook to build up your networking. I decided to take that advice in hand, so I joined Facebook, learned how to use it, and “friended” everyone I know. Now I’m “friends” with one person whose updates disgust me and I no longer want to be “friends” with that person. Are there real-life social consequences for de-friending someone? Or should I just put up with it?
– Ronnie

You always have the option of ignoring that person’s updates while still maintaining a “friendship” with that person – Facebook allows that option pretty easily by just clicking on the X in the upper right corner of someone’s update and marking that you want to ignore their future updates.

However, if I don’t want to be friends with someone on there because I don’t like or agree with the content of their updates, I de-friend them. If someone is posting madness, I really don’t think it’s a social positive for people to go to that person’s profile and see my name on that person’s friend list.

More than anything, though, don’t worry about it. Focus on positive relationships and spend less time worrying about negative ones. Good things will come from the positive relationships; rarely will anything come from a cesspool of negativity.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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