Reader Mailbag: A Moment Is All It Takes

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. Homeowner’s insurance troubles
2. Self-improvement blues
3. High income personal finance advice
4. Starting a small business
5. Prioritizing goals
6. Antiques Roadshow?
7. Trimming down stuff
8. Neighborhood changes property value?
9. Savings bond advice
10. Market timing

You always have enough time to show the people you love that you love them.

It takes only a moment to hold your partner’s hand while you’re sitting side by side. It takes only a moment to lean over and whisper “I love you” into their ear as you’re about to go to sleep. It takes only a moment to stop by a flowery field on the way home and pick a few wildflowers. It takes only a moment to smile when you see your partner after the work day and to ask how your partner’s day went.

A moment is all it takes to give your relationship a little feeding.

Q1: Homeowner’s insurance troubles
I purchased my first home about 2 months ago for $40,000. I just had the house reappraised for $125,000. (I put about $10,000 of work into and it will need another $10,000 in 2-3 years for roof repairs, finishing the basement, etc, but that is another story in and of itself). When I purchased homeowner’s insurance (this is my first time doing so, since I am 22) they told me that the total replacement cost (in the event of a total loss) was $315,000. I said ok, and took out the policy. In talking to my father in law, he suggested that I take the total replacement cost down to $120,000 because in the event of a total loss I could purchase another property like the current one for $40-$60K(for now and the next several years there are many properties in my area that can be bought for a bargain as long as you are willing to do a lot of paperwork and waiting), pay off my current $40,000 mortgage, and still have $20K left for renovations without breaking a sweat. This makes a lot of sense to me, but when I called my insurance company to see if I could do this, they would not let me, saying that they had to insure the property for what it would cost to build brand new. Can this be done with any insurance company? If so, who, and how to do I go about doing this?

– Nick

For the house you describe, the $315,000 in insurance seems somewhat high, but I can’t really say how out of whack it is without knowing exactly what the house is like and whether or not their claims about the actual cost of a rebuild are accurate or not.

There’s nothing wrong with shopping around for new insurance that costs you less and then switching to a new policy when it comes to renewal time.

If you’re really concerned that they’re up to shady business, you can your state’s office of insurance regulation and inquire about it.

Q2: Self-improvement blues
I’ve been working on improving my life in several ways over the last few years. I have improved my finances and time management and my health, too. Yet right now I feel more flawed and depressed than I ever did. Because I was able to improve in some areas, I see now how many areas I can still use improvement on and I feel like I’m not a successful person in any way. Advice?

– Thom

The answer is easy: compare yourself right now to the person you were a few years ago.

When you make a comparison of yourself with even a few better habits to the person you were without those habits, you can really see how much you have changed for the better. The flaws that you still perceive don’t change – what does change is all of the ways you’ve improved.

Your trajectory as a person is clearly heading upwards. Yes, it’s a long journey – an endless one, I would say – but it’s one worth taking.

Q3: High income personal finance advice
To set a little background, my boyfriend spent a year working on a startup – making a wage, but an incredibly low one. He is now rejoining the workforce as a very experienced engineer, expecting an offer in the mid-100k range. This translates to a substantial raise over the last real salary he got, and a HUGE raise over what he’s been paid over the past year at the startup.

We’ve already had a few talks about what he would do with the new salary, but he’s under the impression that if he’s going to make this much money, there’s no reason to put any thought into saving – no matter how much he spends, he’ll just end up with more money at the end of the month. Luckily he has no significant debt (a small amount of CC debt, no student loans left, currently leasing so no car loan, currently renting so no mortgage), but he has no goals for what he could possibly save for. To paraphrase what he said, he sees no reason to save if he’ll just be able to pay for things as they come up.

Obviously, this mindset worries me. I tried explaining lifestyle inflation to him, and the fact that if he continued living the same way he is now, on the new salary, he would be banking a LOT. He is in his early 30s and has nearly no retirement savings. None of this seems important to him, though, and he has said he doesn’t have any faith in the stock market and would not have any interest in investing. I’m currently half way to my goal of saving up enough for a 20% downpayment on a home, but the concept of saving for a large goal (retiring early or working on another startup) isn’t really resonating with him.

Are there any good resources that explain why personal finance matters to people who are not struggling for money? I don’t think I’m approaching this in the right way, so want to see if there are other viewpoints that I need to consider.
– Lisa

The advice that works for your situation works for every other situation. You need to have some sort of a goal for the future or else saving and investing seems pointless.

That’s where I would start. What does he envision his future to be like in ten years? Twenty years? Would he like to be fully retired at age 50 so he can explore his hobbies? Would he love to spin off his own business at age 37 or so?

Once you establish a goal, you have something to start saving for. The challenge is figuring out what it is that makes you get off the pot and start working for it. It depends entirely on the kind of person he is.

Q4: Starting a small business
My wife has always dreamed of opening a costume shop. Thanks to some careful saving, this is actually looking like a possibility. Do you have any books to suggest about how to turn an idea like this into a functional and lasting business?

– Evan

The absolute first thing your wife should do is hit the library and start digging through the small business section. There are a lot of good small business books out there, but most of them cover more or less the same ground, so she’d want to find a few that really click with her.

The first real step she should take is writing a business plan for this business. She needs to think through and lay out every step of the process. Is there a market for this business? What are the initial costs? How will it be marketed? There are literally hundreds of these questions that should be thought out and written out before a dime should be invested in this business.

Once you have a business plan written, you should have lots of people review it and ask hard questions. This isn’t so that they can trash the idea of her business, but so that she can see every hole in her plan and think through them and fix them before real money is invested.

That’s what I’d do in terms of initial steps.

Q5: Prioritizing goals
I have been saving for an engagement ring, recently bought a beautiful diamond (1carat, ideal cut, D color, VVS2 clarity, its a beaut at $6k), need to save a bit more for the ring/setting. (i know fiscally i shouldn’t go big on this, but i began my search for something that gave me that special feeling, and not to buy on price. i accept that, and ill have it appraised and insured when its finished)

My question is for guidance, I am pretty good at being frugal, very consciously trying to adapt to the concept. I opened a Roth IRA 3 years ago, and I have maxed out each year. I have a house fund, my “oh shit fund” aka emergency fund, 3 months living expenses. I have a pretty large gap between income and expenses, and I have been working on prioritizing goals regarding how to utilize the extra cash from each check.

I have
-a car loan that I recently started paying, $23k at 2.9% interest.
-low rent, two credit cards that I pay off each month
-$10k in a house fund
-$3k in my E-fund
-$15k in my IRA
-less than a grand in my checking
-Net worth in the low $40k range

-I want to finish the ring, so i can get it appraised and keep it safe until i give it to her
-I want to pay off my car loan by the time we buy a house.
-I want to buy a house in the next, 3 years lets say.
-And i want to grow that E-fund.

What should I prioritize? where should i direct my efforts to best tackle these goals?
– Larry

The first thing I would do is talk seriously with this lady that you’re about to propose to about what she considers an appropriate investment in a ring. Sarah would have murdered me if I had spent $6,000 on just the diamond for an engagement ring. In fact, her engagement ring was a sterling silver ring with a heart shape on it and no stone, which is just what she wanted. If we did one thing with financial success prior to our meltdown, it was our engagement and wedding. Make sure she thinks an expensive ring is appropriate and desired before you plop a ring that’s approaching five figures in investment down in front of her. That way, you can assess the “finish the ring” goal in a much different light.

In your situation, I would try to have two months of living expenses in your emergency fund as the top goal. Whatever it is that you spend in two months, that’s what should be in your emergency fund. Once that’s done, I would focus on getting the ring situation finished up, then I’d focus on the house. It doesn’t sound like you’re going to have a down payment when you walk into this mortgage, so your best approach would be to pay off your car loan quickly so that you can maximize your monthly cash flow when you get a mortgage.

That’s how I would assess things given what you’ve said here.

Q6: Antiques Roadshow?
I have a box full of books from the 1800s. Most of them are in good shape and a few are books that I’ve actually heard of. There’s going to be an Antiques Roadshow near our home in a few months. Is this a good place to take these books and get a sense as to what they’re worth?

– Mary

In a word, yes. You’re likely to find someone there who will give you a reasonably accurate assessment of the books.

From my experience, some of the items appraised at such a show wind up actually getting auctioned later on by some of the appraisers, though this is, of course, never a guarantee of anything.

What they don’t show you is that the vast majority of the stuff brought into Antiques Roadshow is both uninteresting and not very valuable. They film only the most entertaining bits.

Q7: Trimming down stuff
i grew up in two houses, then went to college where i had an apartment, then i moved home, now im living in a house with a couple friends. i have accumulated stuff everywhere, and not to mention hobbies…which translates into multiple large piles of stuff. sometime next year ill be moving into a new place with the girlfriend and I want to start downsizing my quantity of stuff for starting that new life and i figure if i do it right, the big sell off also means money in my pocket. Whats the right way to go about off loading so much stuff/trimming down hobby items?

– Rodney

The first thing you have to do is figure out what you want to get rid of. That’s actually the hardest part, in my opinion.

Generally, I try to get rid of things that I haven’t used in a year or so. If an item has made it through a year without being used, then it’s likely that it will rarely – if ever – be used again, so I should get rid of it.

Once you’ve assessed what you want to get rid of, I’d head to Craigslist with the understanding that you can’t expect to get a full replacement value when you sell anything used.

Q8: Neighborhood changes property value?
I bought a house in 2006 that was at the very edge of this suburb. There were literally farm fields outside my back door. Seven years later, those fields are now new housing complexes. The property tax value of my home has gone up, but does this change actually raise or lower the resale value of my home?

– Alan

There are some people who might have preferred the view, but given the situation you describe, most people would have seen that there would eventually be houses back there.

If the new residential areas are leading to more services available near your home, my guess is that your property value has gone up a little due to the changes.

You’re obviously in a growing area, so I’d assume there aren’t too many vacant homes near where you live due to the housing glut. That’s a factor that’s in your favor as well.

Q9: Savings bond advice
I have a question for you about some EE savings bonds that were purchased for me as a child Every month from 1984-2001 my mother purchased a $100 savings bond for $50. I used the bulk of these savings bonds to pay for college, but I still have about 30 left (from 1998-2001) and I’m at a loss as to what to do with them.

I don’t need the money right now, but I am not sure if the money could earn more in a mutual fund. The current 6 month interest rate is .63% but it has been over 4% in the past. the average value of the bonds is about $75.

What do you suggest I do?
– Erica

If you sell them and move them into some other investment, you’re adding risk to the equation. A “mutual fund” means potential for greater gains, but there’s risk involved.

In 2008, for example, the stock market purged about 40% of its value. That didn’t happen to your bonds. In other years, the stock market has gained about 15%. That didn’t happen to your bonds, either.

If that type of risk and that type of volatility is acceptable to you and to the goals you have for the money, you can certainly make that switch. Your bonds will always be roughly pegged to interest rates and will always have some level of positive return. Stocks don’t have that guarantee, but they do have higher potential gains.

This somewhat leads into Jim’s question, below.

Q10: Market timing
It seems to me that right now is a terrible time to encourage people to buy stocks. The stock market has basically been moving upwards for about four years straight and historically when that happens it eventually begins to fall and lose some of those gains over the next year or two. Right now, it feels like “buy high” to me.

– Jim

I don’t really believe that much in market timing unless you’re doing something akin to day trading. You’re correct that at some point in the future, the stock market will likely fall. Regardless of what the future does, though, it was a much better bargain to buy most stocks in 2009 rather than today.

That doesn’t really change whether or not investing in stocks on a regular basis is a good choice for someone. I’ve been essentially dollar cost averaging for years. I buy a certain amount each month regardless of what the market is doing. I bought in 2009. I’m buying in 2013. I’ll be doing the same next year regardless of whether it goes up or down. (I’d actually prefer it goes down again, then starts rising before I want to sell, of course.)

There are certainly strategies you could employ that might help you avoid buying at the peak, but such strategies are never a guarantee and you might sit there doing nothing while stocks go up for another year or two. Similarly, you might miss out on buying as the market is dropping. Plus, you’re spending a lot of time trying to “time” things well.

I’d rather just let dollar cost averaging do the work and not worry about it.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll 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.

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