Reader Mailbag: Paper Journal

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. Fee-free prepaid debit cards
2. Peer-to-peer lending
3. 401(k)s and dividends
4. Favorite board games
5. Borrowing money and cultural conflicts
6. Preparing for a home purchase
7. Making financial learning fun
8. Super Bowl predictions
9. Dietary changes
10. Target Retirement fund? Or not?

After keeping an electronic journal for about twelve years, I decided, at the start of 2011, to switch back to using a paper one. Why? For conciseness.

Whenever I would make a journal entry electronically, I was able to go on and on and on… and on… and on. Because many of the entries were so long and rambling, I had a hard time really grasping what I was deeply concerned about or what was really going on in my life at that point when I would look back at these entries.

I’ve been using a pocket Moleskine diary which lets me get about 125 words in per entry, in handwritten form. This does two things. First, it keeps the daily entries short, meaning that they’re distilled down to something readable and manageable. Second, the art of handwriting makes me think much more carefully about my word choice.

The entries so far have been so much better (in terms of re-readability) than the long wandering diatribes of the last several years.

Q1: Fee-free prepaid debit cards
I’ll be moving out of state soon and want to manage expenses related to the move. I’d like to get a prepaid debit card, load it once with the amount I’ve dedicated to the move, and then cancel it easily after I’ve used all the money on it. Are there any cards out there that don’t have fees associated with them and are easy to cancel? I plan to use all the money on the card within the next 3 months so I don’t want to pay any fee associated with holding the card longer than 30 days, or any transaction fees etc. I also need to be able to cancel it easily and I know some of them are extremely difficult to cancel.

– Maria

I think you have to choose one or the other.

You can easily get prepaid debit cards that aren’t tied to your identity at all and carry the Visa logo on them for a roughly 5% service fee up front. You can just use them pretty much anywhere on the planet until the balance runs out, so after you take care of moving expenses, you could use them for groceries or gas. Of course, the problem is the 5% upfront fee.

You can get a much lower fee than that, but you have to tie it to your identity and, as you noted, it can be difficult to cancel such cards.

Honestly, why not just put the cash in an online checking account like ING Direct Electric Orange, get the debit card issued for that account, transfer whatever money you wish to that ING Direct account, and just use that for this purpose? That’s what I’d do if I wanted to keep money separate like this.

Q2: Peer-to-peer lending
I was searching your site today for your opinion of P2P lending sites such as lendingclub.com and prosper.com but could not find anything. It’s definitely a riskier investment but I thought this may be another way to diversify my investment portfolio. What do you think?

– James

Quite honestly, if I were going to invest my nickels and dimes into peer-to-peer lending, I’d probably do it with and not worry that much about a return.

From what I’ve seen, on such peer-to-peer sites, the returns on the few good loans they offer are really low, while the failure rate on the higher risk loans are so high that you’re going to have a challenge making a good return through all that noise. From my eyes, it becomes akin to gambling at that point, since you really have limited information on who or what you’re investing in.

If you like the idea socially and conceptually, go ahead and use them, but view it as a very speculative part of your portfolio.

Q3: 401(k)s and dividends
Why don’t 401k plans pay dividends, in the same manner as funds held at other institutions?

My husband and I are in our 30’s and have each had several jobs at various corporations throughout our careers. I have worked for a teeeny tiny mom & pop, and am currently working for one of the largest corporations in the world. At no point have any of our 401k plans ever paid out a dividend. The individual share prices rise and fall with the markets, but that’s it. So the only way to increase our balances is to add more funds.
– Tanya

Many investments within many 401(k) plans do pay dividends. The exact mechanism varies a lot, however.

What you’re probably seeing is that you’re invested in funds that reinvest the dividends within the fund automatically, which raises the value of the investment. The value of your dividends is reflected in an increase in the sticker price of the shares you hold rather than in a dividend payment.

You’ll want to look much more closely at the statements and documentation provided to you by your 401(k) investment house.

Q4: Favorite board games
You obviously play a lot of board games, and you regularly offer recommendations for “starter” board games to others. What are your favorites, though?

– El

, my favorite short game, is a game of competing civilizations. Each player controls one civilization of the ancient world and your goal is to essentially create the most culturally, militarily, and scientifically adept civilization. It’s all card driven and the game takes between fifteen and thirty minutes.

, my favorite medium-length game, is a game in which players are speculative art brokers. Throughout the game, the players take turn auctioning off paintings to the other players, collecting the proceeds from the auctions and then spending those proceeds in other auctions. Painters who have more paintings sold will have more valuable paintings at the end of the game, but you don’t know (for sure) what paintings will be sold throughout the game because everyone has a hidden hand of paintings that they will sell (sold paintings stay face-up on the table). It takes about an hour and fifteen minutes to play and is heavily an exercise in reading other people and convincing them to pay more than they should for the painting you’re selling.

, my favorite longer game, is a game that basically simulates the growth of a port city in France. You’re an investor who invests in buildings and ships in order to take best advantage of this growth. Unlike Monopoly, this game has a fixed number of turns, so the only variation in the length of a game is the slow or fast play of the players. It plays very well as a solo game (taking about 60 minutes) and works with up to five people (which takes about three and a half hours).

Of course, ask me again in six months and you might have a completely different list.

Q5: Borrowing money and cultural conflicts
My boyfriend and I own a home together. We are waiting to have the cash for our dream wedding. However we plan to go to City Hall and get a marriage license before I start my second graduate degree in August.

Currently I work in a government job that makes $43k a year, I also teach one class a semester at a University which pays $3k/semester. It is not a guarantee that I will teach each semester. My boyfriend makes about $70k a year as an engineer once you factor in his bonuses and overtime. We have $50k in retirement savings ($7k is mine), and $8500 in joint savings. We hope to increase this to $10k and invest in Roths for both of us. After that we will begin the savings cycle again with the aim of having $10k in emergency funds, and another $3k for a trip to China to visit his aging grandparents by August. After taxes and deductions we bring home about $6200 a month. $2200 of this (more or less my income) goes directly into our savings, and we spend the rest on our mortgage and living expenses. This savings method usually works for us. We had to pull money out of savings this year during December (I got accepted to graduate school and had to pay a deposit along with the holidays and birthdays) and July when we decided to pay off the rest of our home remodeling bills.

Our mortgage is $1700 a month (we pay an extra $100 towards the principal monthly). Cable and internet are $100, gym memberships $100, and utilies average $250-$350. I also have a personal interest free loan from his mother that paid off my loans from my first graduate degree. We pay $500 a month on this and owe another $9500. We have no other debt. We are frugal in areas that work for us, research our purchases, but rarely feel like we can’t afford the things we want. We go on road trips, eat out a few times a month, and spend money on our hobbies (fishing, kayaking, camping etc.) My grandma will be moving in with us soon and she will be contributing some rent ($400 total). When I start grad school, one of my classmates will move in with us and pay $500 in rent.

Tuition is going to be expensive. I picked a local school rather than one with a much higher ranking because I did not want to take out cost of living loans and leave my boyfriend. The total cost is $67k which does not include books and supplies. My boyfriend’s mom is offering to extend us another interest free loan to cover tuition. Our culture is very against paying interest and loans in general. My parents also plan to help in other ways, but they don’t have the same financial means.

This is a very generous offer, and our families are very supportive of my career goals. The job outlook is good and the lowest graduate starting salary I’ve seen for this program (physician assistant) is $64k+ with many other grads making between 70-100k. Financially this is the best decision, but are there methods to make sure that there won’t be interpersonal problems in the future regarding money? Since we have the means to tighten up our expenses a little bit, should we just take out students loans instead? We plan to have a contract signed, but these are very informal handwritten pieces of paper based on my past experience.

Our families have developed great relationships with each other. My boyfriend’s mom has been wonderful to me, and I would like to keep things good like they are now.
– Lorrie

To me, the answer to this whole problem would come down to whether or not your boyfriend’s parents can easily afford this expense. If it is not going to significantly burden them, then take advantage of the opportunity.

On the other hand, if it is going to significantly burden them, then you may be opening the door to some significant challenges down the road and may want to look at student loans instead.

I usually encourage people to not borrow money from family members, but I think if there is an exception to that rule, it’s a wealthy older relative loaning money to a young relative who is a student to pay for tuition. If you’re actually getting married to this fellow, then his mother is family.

Q6: Preparing for a home purchase
My fiance and I are buying a house in August or September (our lease is up August 31). We live in metro Boston so our budget is probably going to be about $350K. In liquid assets right now we have about $36K for a down payment, or just over 10% (this includes me wiping out my new car and rainy day money). He’s admitted to me that he’s not good at managing money, since, in his own words, “I’ve been overpaid since I started working”. (He was making more at at his graduate internship than I do now.) We’ve compared numbers and have been talking about ways to make this work (PMI, automated savings, etc.) but he wanted me to advise him on a course of action for the next six to eight months, money-wise. He overpays his car loan (only $325/month) when he thinks of it, and throws the occasional $500 or so into savings when he thinks of it, but I’m not sure what to tell him besides “stop buying lunch at work!” What advice do you have for me to pass on?

If it helps, he makes about $70K as a software developer for a huge info security company, and I make just over $38K as an admin assistant for a consulting firm. I also have part-time retail income that goes directly to my emergency fund. We both have good credit scores: mine is in the 760s and his is probably closer to 800. I’m 24 and he’ll be 26 next month.
– Jessica

A person has to be open to learning about personal finance before any such material is of any use at all. I’m not sure he’s open to learning. I think he just wants you to tell him what to do so you’ll get off his back about this whole personal finance thing.

What that means is that on a fundamental level, his behavior won’t really change that much. He’ll make some specific actions to please you and follow what you suggest, but when he’s faced with the choice of going out to lunch with the boys, he’ll likely do just that.

Personal finance success has to come from within. If he doesn’t care about it, you’re not going to be able to make him care. My suggestion? Get control of as much of the family finances as you can and keep the reins.

You can preprogram his car radio to the Dave Ramsey station, but there’s nothing stopping him from just flipping the channel.

Q7: Making financial learning fun
I currently have a major impediment to my financial health, namely my boyfriend! We live together and split our bills, but as a result of some long-term unemployment (although he’s currently employed), he has many bills in collections. He has several bad financial habits, such as overdrafting his bank account on a regular basis, that threaten his ability to provide his half of the bills — and thus threatens my financial health! In the past, he never took care of his own finances and is now attempting to learn how to do it on his own. I’ve tried to help, but I think he’s both embarrassed about his situation and wants to finally learn how to do it himself. We have had many talks about financial matters and we agree that we have the same goals and are committed to spending less than we bring in, but he has problems following through with those ideas.

I think it would really help him to learn more about personal finance and to become interested in it, like I did. I’ve tried to forward him some interesting articles from your site, but he hasn’t taken to it. Similarly, he’s not a big reader so I’m hesitant to drop a Dave Ramsey book in his lap. I was hoping you would have an idea for a fun, maybe interactive, website or other learning tool that he could explore that would get him interested in personal finance. Basically I think he needs something to both educate him on personal finance and show him that it’s not all scary!
– Ardy

In your case, it seems that your boyfriend is starting to become aware of his personal finance situation and actively wants to change it.

If I were you, I’d stop at the library and check out an audio copy of a strong basic personal finance book, like Dave Ramsey’s Total Money Makeover – or, even better, the .

Ask him to listen to them in his car during his commute instead of whatever he listens to. I think you might be pleased with the results.

Q8: Super Bowl predictions
Who’s going to be in the Super Bowl? Who’s going to win it?

– Charlie

The two teams in the Super Bowl will be the Green Bay Packers and the New York Jets.

The game will be close until the fourth quarter, where New York pulls away to win 28-14.

The real winners of the Super Bowl will be, as always, the television networks and the advertisers.

Q9: Dietary changes
I was curious if you’d felt significantly different since the last time you had a dedicated post about your dietary change.

My father (68) has been having recent health problems, which I’m convinced are related to diet, but every doctor he goes to just prescribes meds for him to take (blood pressure, cholesterol, diabetes), and they don’t seem to care about him making lifestyle changes — I’ve been vegan for 15+ years and he refuses to listen to me re: dietary choices and health. I’m hoping to send him blogs, stories, etc. of people who have recently changed their dietary habits and noticed changes in their health.
– Paul

I’ve noticed several positive changes since changing my diet to a mostly vegan diet (vegan with the exception of occasional fish, maybe once a week) in October.

First, I have more energy. I didn’t notice a change for the first two weeks or so, but it definitely jumped after that, up to a new normal.

Second, I’m slowly losing weight without additional exercise effort. I’d estimate that I’m losing about a pound a week on average.

Third, I’m no longer having night sweats. For several years, I had night sweats terribly and they’ve absolutely vanished.

Finally, my cholesterol is down about 40%.

The only thing I’ve changed in my life is simply excluding meat and animal products (with the exception of weekly fish). Nothing else is different. I don’t get paranoid about it, either. It’s pushed me to try new foods, and it’s had some very nice medical benefits.

Q10: Target Retirement fund? Or not?
I just opened a Roth IRA last year to start saving for retirement, as my company (a start-up) doesn’t offer a 401K. I started to contribute towards the end of the summer of 2010, so although I’m not sure I’ll max out the 5,000 for 2010 before April 15th, I fully plan on doing so going forward, having the payments taken automatically out of my checking account after each paycheck. I’ve been doing some reading on the best investment strategies, and since I’m far from a seasoned investor (basically a newbie), target retirement funds seemed like they were right up my alley.

However, I’ve also read some information that seems to imply that if you go with a target retirement fund (such as one of Vanguards), that this is basically what all your IRA funds should be in. I’d love to invest in these funds as I increase my knowledge of investing, but I’d then like to start looking into investing in individual stocks, bonds, index funds, etc within the Roth IRA. Is this a bad idea – should I just stick with one fund for my retirement, and leave the other investing to a separate brokerage fund? Or can I have, say 50% of my allocation in a target retirement fund, and then spread the other 50% out as I see fit? For context, I am 26 so I have some time to take some risks.
– Matt

A target retirement fund is basically made up of several different funds at once. For example, a target retirement fund might be 50% in domestic stocks, 20% in international stocks, 20% in bonds, and 10% in cash. Those four components are likely shares of other funds sold by the same company, so the 50% in such a fund at Vanguard would be the Vanguard Total Stock Market Index.

Over time, a target retirement fund gradually becomes more conservative if you just leave your money there and your retirement date approaches.

For most people who don’t want to try to balance their own retirement portfolio, a target retirement fund is a great choice. The only reason not to use it is if you don’t like the balance that it provides and you want to do the balancing yourself. For example, if you decide you want more risk and more aggressive investments, you might have 50% of your portfolio in a target retirement fund and another 50% in international stocks. A conservative investor might have that second 50% in bonds.

You can balance and mix however you’d like. Target retirement funds really are just a convenience that matches what most investors should be doing with their retirement funds anyway.

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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