Reader Mailbag: Special Meals

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. Father getting out of debt
2. Reporting interest
3. Freedom versus feeling like loser
4. Alcoholism and finances
5. Underwater home – should I care?
6. Dollar sign pros and cons
7. Down payment versus IRA
8. Age and money
9. Beating myself up
10. Spending problems

One of the best parts of knowing how to cook at home is that, when you want to make a special meal, you only have to spend $10 or $15 on ingredients instead of dropping $100 at a fancy restaurant.

With a bit of effort, it’s not hard to create a romantic environment at home. Just cover a table in a nice cloth, put a candle or two or a few fresh flowers on the table, and put effort into setting the table with your nicest dishes.

If you plan the meal well, you can practically pull the finished meal from the oven and place it on the table, ready to go, so that your meal isn’t interrupted by food preparation.

I speak from experience – a romantic meal at home is a wonderful thing.

Q1: Father getting out of debt
I’ve built a solid career with my current employer spanning over 13 years now, making a more than decent salary of about $80k gross, however I have very little left in savings. Due to a divorce, I was forced to sell our home 3 years ago in the worst possible market, yielding virtually no profit. For the last 3 years, over half of my net take home pay goes to child support and alimony. Alimony will end soon, but I am still carrying about $25,000 in credit card debt from the marriage, which is making it very difficult to increase my gap and “start over”. My child support will go on for a significant period as my youngest is only 6 years old.

I no longer use ANY of my credit cards, so the debt is no longer growing but my gap is incredibly small due to throwing almost every extra $ at these debts. My interest rates are relatively low, around 2% frozen thanks to negotiations with the credit card companies and pretty much “over”- committing to automatic withdrawals, making my available “working” cash even tighter. I also have very low overhead as far as household expenses due a temporary arrangement and need to start saving for a real estate purchase for my family, as well as building up my savings, pretty much from scratch.

My inquiry is this-I have a brokerage account(separate from my 401(k) built on company stock that could almost eliminate both credit card debts. While I think cashing in the stock to pay both off would be too costly for income tax reasons, I was wondering if you think it is a viable solution to pay the smaller credit card debts off and be done with them by selling some of my stock.
– Daniel

Tapping your 401(k) is almost always a terrible idea. It should only be a “last resort” kind of thing, and you’re clearly not in that situation.

Not only does a 401(k) withdrawal count as regular income, there’s an additional 10% tax on top of that. On top of that, you’re reducing your retirement savings.

A much better approach for you in this situation would be to look for additional income sources. Are there other employment opportunities you could tap to generate additional income which you could throw entirely toward your debts? I would evaluate that path thoroughly before tapping a 401(k).

Q2: Reporting interest
How much interest do you have to earn before you report it for income taxes?

– Donald

You should report any interest earned. If it’s less than $0.50, you should still report it, but you can round it down to the nearest dollar – $0, in other words.

Not reporting interest has a chance of causing you a lot of headaches later on. You’re far better off reporting a relatively small amount of interest now – upon which you’ll pay a pretty tiny amount of taxes – than not reporting it and having it pop up with interest and fines later on.

Yes, it’s a hassle, but a good tax software package like Turbotax makes it pretty easy to handle.

Q3: Freedom versus feeling like loser
I understand completely what you’re saying about personal finance being about freedom. It seems awesome and empowering when I’m sitting at home reading Money360 or when I’m by myself. The problem is when I’m with other people, where I feel like a loser for skipping out on stuff and going cheap-o all the time. I don’t want to be the “preachy” guy talking about how great it is to be cheap and I feel like a dork when I constantly go cheap all the time.

– David

You need to stop caring what those people think of you. Why do you feel like a “dork” for doing what you independently decided was a good thing? The only difference is the influence of others and your own ideas of what they’ll think of you.

Stop worrying about it. If someone ceases spending time with you because you’re trying to be frugal, that means that they were friends with the money you were spending, not with you.

I completely agree with not being “preachy” about it. There’s no reason to constantly tell others about your personal finance choices. Just live your life.

Q4: Alcoholism and finances
Since 2009 my husband lost his good job in management which cut our income by about 110k bonuses. He did get unemployment which made up about 34k yearly. He was employed as a sales rep for almost 2 years when at the beginning of December he lost his job again. This salary was ~ 65k. He is an alcoholic and has lost his license which has caused him to be let go from his jobs. His job performance was always good and he was at the first job for 20 years but the disease has progressively gotten worse. So I had been paying off credit cards as much as I could making good progress. The mortgage was being paid early and we were much more comfortable the last 2 years. Now I’m so frustrated we are back to square one! Would you be able to give me your opinion on our finances?

– Nicole

Making sure that your husband conquers his alcoholism is far and away the number one priority here. It’s more important than your debts or anything else. If he doesn’t conquer that disease, it will undermine all of your other plans and all of your other progress. You have to deal with that, first and foremost.

He needs to seek professional help if his alcoholism has caused multiple job losses. The solutions to that problem will probably involve some changes for you as well, particularly social ones. Do them. I also strongly encourage you to get involved in support groups for spouses of alcoholics, as they will help you through the hard times and be able to provide tons of advice. I hope you’re already doing these things.

Once you are seeing success with his alcoholism, then you should focus on finances. Your husband needs some form of employment, even if it’s not what he might ideally desire. A change in profession might be useful as a change in scenery for him, too. That is the most important thing for you to do, I think.

Q5: Underwater home – should I care?
I looked on and found that my house is estimated to be worth less than I still owe on my mortgage. Should I worry about this? I plan on living here for a while.

– Daniel

Unless you’re planning to sell in the near future, I wouldn’t worry about it too much.

You can probably assess the future of the value of your home by what’s going on in your neighborhood. Are most of the houses occupied? If houses go up for sale, do they stay up for sale for a long time? Is there stable employment within reasonable distance of your neighborhood?

If you’re answering “yes” to most of these questions, I really wouldn’t worry about it. I might worry more if you’re answering “no” to the questions, though, but I would be surprised if you’re saying “no” and still happy living there.

Q6: Dollar sign pros and cons
My husband and I are considering a move to another area of the country (from the Midwest to the Pacific Northwest). We have made a big list of pros and cons and we have been able to assign dollar figures to many of them but for some we can’t do it. How do we figure the value of things like the friends we have in this area? It is easy to say that “friendships are priceless” but if that were true we would never even think of moving. They have some value but we feel guilty trying to figure out what it is.

– Dana

Rather than assessing the value of your friendships, look seriously at the lifestyle you have and ask yourself whether or not it is easy to establish new friendships. Do you belong to community organizations? Do you plan to do so after you move? Are your jobs socially oriented, where you’ll end up building some relationships with your peers?

I don’t know the answers to those questions, but I’d suggest that the more opportunities your lives (and your personalities) will offer to build friendships, the better you should feel about moving.

Sarah and I are not deeply social and I’m self-employed, so our opportunities for building new friendships (if we were to move) would rely heavily on community organizations as well as our concerted efforts to build those new friendships. In other words, for us, I’d find significant value in staying in the area for social reasons.

For you, who knows? Just consider your ability to establish new relationships and use that as your determining factor.

Q7: Down payment versus IRA
My husband and I sold our underwater house at a 25k loss in December. We are living with my mom in order to save a down payment, but owe her 7k from the house sale we borrowed. We aren’t paying rent, she just asked us to pay for all food costs. By the end of January, we can pay her back 7k and be debt free. We have no other debt.

We plan to live here a year and a half to save up 60-90k for a down payment. We are in NJ and home prices in good areas are higher, but we are hoping to find a gem in the 250k or less range in a nice area. I am impatient and want to buy with PMI again, but I know my husband will keep me calm and we will stay here the 16-18months. We also plan to have a second child while here, which will increase some childcare costs.

We work in education, make decent salaries and do not get paid for the summer (which slows our savings ability tremendously).

My question is this: do we save up the 60-90k solely or should we fully find our Roth IRAs this year before April 1st since we’ll have just that amount in the bank before then? We can save about 6k a month if we are frugal and with funding the IRA our savings will be back to zero in April to save for 3 months before no summer pay (18k hopefully).

What do you think? I know you can pull out your IRA contributions for a first home, but this would be out second time purchasing a home in 2015 (not a second home).
– Linda

If you are content in your current living situation, I’d fund the Roth IRA. I would only consider not funding it if you found something deeply problematic with your current living situation.

In other words, if there’s nothing really pushing you toward a quick move, you shouldn’t make a quick move. You’re better off continuing to get your financial house in the best possible order.

From what I can see, you guys are doing just fine. Just be patient.

Q8: Age and money
I love your story of turning your life around financially but I think that some of it is just age and maturity. The things you value in your twenties are different than what you value in your thirties and later.

– Darren

I agree that the values of people change over time, but many people, even as they age, never take responsibility for their finances. That’s why there are many people staring down the barrel of retirement and wondering what they’re going to do.

I do think that growing older makes it easier to do the things that will ensure solid personal finance growth. For example, I think that age makes it easier to worry less about what other people think.

Still, even with the changes that age brings on, it doesn’t guarantee financial success.

Q9: Beating myself up
Whenever I read money advice I just feel like I’m stupid and that I’ve blown too many chances and that I’ll never succeed so what’s the point?

– Alice

Every single person makes financial mistakes. All of us do it. I make mistakes all the time. I buy things I shouldn’t. I don’t communicate with others about financial issues. I don’t do the extra work that I should sometimes do.

The only difference between where I am now and where I was several years ago is that I decided to start making as many good choices as I could about my money. I realize I’m not going to be perfect and I’m going to mess up, but that doesn’t mean I can’t make as many good choices as possible.

Take this whole money thing one day at a time. Try to fill a day with lots of good decisions, where you don’t spend money needlessly. It will feel good. Try to do it again the next day, and the next. Soon, it will all begin to feel normal. Yeah, you’ll mess up sometimes. When you do, think about why you messed up and just try not to repeat whatever it was that caused you to mess up.

That’s really all there is to it.

Q10: Spending problems
I’ve read your column for a long time, and I’m not very good at managing money yet, but I’ve come a long way from a few years ago. I was diagnosed with Bipolar II disorder so for a couple of years I had a real problem with impulsive spending which caused me a lot of financial issues. But for the past two years or so I’ve done reasonably well at budgeting – I plan out categories for every type of thing – Rent, each type of bill, Food, transport and ‘Spending’.

My problem is the spending category. I like to plan what I want to buy in advance so that I don’t waste money – i.e. rather than buy a book that looks good on impulse and then see one that I like the look of much better, I instead look around a whole bunch of books to find one I really, really *love* and put it on my Amazon wishlist. That way I have a whole bunch of things I really love.

But there’s my problem. I have a list of things I LOVE. So every time I look at the list I’m very tempted by it. It’s a curation of wonderful things.
– Natalie

My solution? Only look at the list once a month when you’re going to spend money. Aside from that, just add items to the list and don’t look at the list.

Once you’ve decided on what you want from the list – and, likely, removed a few items, too – buy those items you want and just walk away from that list. Don’t look at it again for a month.

If you don’t have money to spend, there’s no reason to look at that wishlist. So don’t look!

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.

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