Reader Mailbag: The “Making It All Work” Series

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. Stuck between goals
2. Dealing with partner’s student loans
3. Preparing for involuntary job loss
4. Replacing a vehicle
5. Jack of all trades
6. Using sleep as “mental downtime”
7. Buy house or attack debt?
8. Using Amazon gift credit
9. Earmarked “baby” money
10. Emergency savings or credit payoff

I’ve started working on the Making It All Work post series that I mentioned a few weeks back (and many readers clamored for). I’m currently reading the book and taking notes, and the post series will start on the first Tuesday in October.

It should be fun. There are some very intriguing pieces in this book, ones that stretch far beyond time and task management and into big overall life choices.

Here’s my monthly financial situation (Single, no kids, age 32):

Monthly take home income: $4,400 (after 401k contribution of $600)
Monthly payments: ~$3,300

Summary of payments:
Rent: $700
Utilities: $50
Student loans: $1,100
Credit card payments: $800
Forced savings: $500
Insurance: $150

I carry about $7,000 in credit card debt (about 5% APR), and about $130,000 in student loans (about 6.9%).

I make 2/3 of my meals, don’t own a car, and recently downloaded a bunch of budgeting apps for the iPhone, none of which seem to be helping me rein in my spending (I don’t own a lot of stuff, but I like to travel and eat high quality food). I also bought Your Money or Your Life, but I’m less than 1/3 of the way through it. My money seems to just disappear each month!

Any help or suggestions would be greatly appreciated.
– Eric

The biggest thing that seems to be missing in this picture is motivation. What is your reason for wanting to spend less? What are you aiming for in life?

Sit down and set some concrete goals for the future. What do you want to be doing or have done in five years? Maybe it’s just as simple as travelling to a certain list of places. Maybe you want something else.

It is much harder to hold onto a difficult set of tasks (like changing one’s spending behavior) when you don’t have an overarching reason to do so. You seem to be very much in a “live for the moment” mode, which isn’t a bad thing, but it usually runs contrary to longer-term financial planning and financial success.

My wife and I have been married almost a year now and we celebrate our first anniversary this labor day. We are 26, live in Upstate NY and we both have very stable jobs. I feel that we are at a strange point financially right now (strange in a good way). We are very comfortable but we both know that we could be doing more with saving and paying down debt. We bring in around $130K total a year. We both paid off our cars in the past six months and with that extra cash flow coming in we are in a happy lull stage. We have a $10K emergency savings account and anywhere from $3K to $5K in savings in our normal savings account. Our debts are primarily school loans and the situation surrounding the debt is not simple. Here are our debts:

My school loans: $12K @ 2.5%
My wife’s school loans: $12K @ 2.5%, $48K @ 6.0%
Mortgage: $111K @ 4.5%, 15yr fixed

My wife’s school loans feel daunting and we are in a weird place because we have never considered our school loans as “our debt”. I don’t expect her to have to pay for my school loans and vice versa. Some background: Before I started college my parents and I came to the agreement that after scholarships they would pay for half and I would pay for half and I would be on my own. My wife never had that type of conversation with her parents… She is the middle child of four and in my opinion the most successful/independent child. My wife deserves a ton of credit, she has paved her own way and made it professionally. My in-laws have paid all of her siblings’ collegiate bills in full and my wife is stuck with $60K in loans. Her parents can easily make it an equal situation among all their children. We would like to start a family but I feel uncomfortable having a child without putting a serious dent in her school loans first. I know we should probably just sit down and communicate this with her parents but we are successful, are proud of our independence and we don’t want it to seem like we are asking for help. In the end we can handle our school loan situation but it is hard dealing with the inequality of the situation. We also have a great relationship with her parents so we don’t think that this is some type of punishment for being independent (or we hope it isn’t). Any advice on how to treat this situation would be great.

If we do plan to tackle our school loans we have come up with the following scenarios: live off my salary and push 100% of her salary to her loans, live off my salary and keep her salary in a savings account if her parent’s decide to help with the loans, or get over our school loan stigma and treat all the debt as “our debt.” We also really want to get into a “SUPER SAVER” mode and living off my salary seems to be a good solution. We have a bounced around the idea of using the flexible/fixed checking accounts or setting up a “my money” “our money” “your money” type of situation where chunks of my salary go into each pot. We both like the my, our, your money approach because we’ll each still have a pot of money that we can individually decide what to do with. Your thoughts and advice would be great.
– Kevin

Here’s the thing: when you’re married, the debts of either partner affect both of you. It doesn’t matter who brought those debts in the door. The fact is that money is going out the door to those debts, and that exiting money affects both of you because it changes how money is spent in your household.

My advice to any married couple is to treat any debts brought into the marriage as “our” debts rather than “your” debts or “my” debts. Pay them off together, then talk before incurring any more debts.

I don’t think there’s anything wrong with each partner having a small pool of “my” money to spend on whatever he or she wishes. However, that money needs to be balanced among the two partners and how it is used shouldn’t affect the other partner at all. If you want to use your little pool of money towards debt repayment, that’s your choice.

My wife and I are young DINK’s (23 and 22) and plan to stay child-free for life. Her salary is roughly 50% of mine, but the benefits are outstanding – primarily, in addition to good matching contributions, she receives $475 in free cash per month straight to her 401(k) since my benefits cover the health insurance.

The trouble is that her position is very high stress, in absurd proportion to her salary. Her opportunities for advancement are very limited, and management is not supportive of her efforts and the projects she works on; for the company, she and her job are very low priority. Although she enjoys her tasks well enough and they’re distantly related to her degree and passion (art), she is justified in feeling overworked, underpaid, and unappreciated. I am extremely happy at work, have an almost unlimited ceiling for advancements, am 100% confident in the security of my job of 5+ years, and make enough to cover our needs and still contribute about 15-20% of my gross salary to savings. She’s thinking about leaving her job some time in the next 3 to 18 months because the stress may not be worth the monetary benefits. No other job opportunity in our local area is going to be better than the one she currently has, by a long shot. If she leaves this job, she most likely would not seek out another.

We have a decent emergency fund (about 2.5 months of necessities) and impressive retirement savings for our ages ($35k+). We have arranged our budgets such that I cover every bill. Our debt is modest and is decreasing. We’re done with accumulating debt, I strongly believe, and have already eliminated the small amount of credit card debt we had. The mortgage ($180k), her student loans ($21k), my student loans ($15k), and all the necessities of life come out of my paycheck. Recently, her paycheck has gone toward improving and fixing up our new home (purchased in January), which we bought as a foreclosure that needed some work. With the projects wrapping up – now it’s just routine maintenance – and her thoughts of quitting, we have restructured our budgets such that 100% of her paycheck will go into savings from now until the time she decides to leave. Essentially, she has already quit her paycheck. We know that the longer she sticks it out, the larger our savings balances will be by about $1400 per month.

Our current expenses include some fluff that we only spend because of her job. For example, we sometimes eat out after she works a 12-hour day, or pay someone else to sand and seal the deck because we don’t have time, or indulge in alcohol or sweets as a “reward” for working so hard. I know from YMOYL that simply by leaving her job, she will eliminate a certain percentage of expenses related to keeping the job. We also plan to use her potential time at home to more aggressively pursue frugal, money saving strategies. Additionally, without her salary, I think we will be bumped down to a lower tax bracket.

Two questions – 1) What are your thoughts on my spouse potentially leaving a decent-paying but high stress job, especially in this uncertain economy? 2) What additional steps can we take to prepare for this transition?
– Ben

I don’t think it’s ever a good idea to bank financial choices on a brighter future (with the lone exception of student loans). Every time you tell yourself that your “future self” will deal with this, you’re telling yourself a dangerous story. I spent most of my twenties telling myself that my “future self” would take care of it. One day, I learned the hard way that my “future self” won’t take care of it – because, frankly, your future self will likely be facing most of the same problems you’re facing now whatever burdens you’re trying to stack on him or her.

In other words, I’d prepare very, very carefully for this move. She should make an effort to determine what exactly she would be doing post-job before she leaves. I’m guessing that she’s banking on some sort of art career. Make your emergency fund nice and fat so that any transition costs (or short periods without income) are handled easily. Save more than you possibly think you’d ever need.

She should also leave as delicately as possible, because that’s a bridge that doesn’t need to be burned. She may someday need to return to that field or even to that specific job. You should also discuss the possibility of a counteroffer before she receives it – often, jobs with overworked and underpaid employees will see a big raise offered if someone suggests quitting.

Our family is looking to purchase a van. We have family that lives four hours away and need the room to transport all of our stuff, our two children and our dog. We currently have a small compact car and a four door truck. My question is this. Since we do not have the cash to pay for the vehicle and would have to get a loan, would we be smarter buying a cheaper vehicle and getting it paid off as soon as possible and then saving for the next vehicle or should we just bite the bullet and buy the more expensive van (Toyota or Honda) to start off with? We currently pay $465/month towards our truck (which is more than we are required to pay but we want to pay it off sooner) and we are not going to purchase the next vehicle until the truck is paid off and anticipate that we will just use the $465 a month towards the new vehicle.
– Sarah

In terms of the family, this sounds quite a bit like our own situation. Because we take so many three to four hour road trips to visit family, vehicle reliability and gas mileage are big premiums for us and have both fed our vehicle choices in the past.

If you don’t have enough sitting around to pay for the new vehicle, get one that you can afford now and save for the optimal choice later on. I wouldn’t recommend walking onto a car dealership unless you either absolutely need a vehicle or you have the cash to pay for it. If you’re in a “need” situation, buy low end and start saving for the next purchase after that one.

I would focus on minimizing the monthly payment for your next purchase and then bank the difference between the $465 number you quoted and the actual payment you’d be making. Pay off that vehicle and drive it until it’s starting to become unreliable, then trade it and use the cash you’ve saved to upgrade. Keep doing that until you can continually purchase late model used or even new vehicles without taking out any financing.

Sometimes I get the feeling I am trying to do too much. How you do you feel about the old saying, “Jack of all trades, master of none”?
– Ryan

I think there’s value and utility both ways. A well-rounded skill set is always useful, as is an expert in a particular field.

I tend to apply this general philosophy: be a “jack of all trades” when it comes to what you personally need and be a “master” at whatever trades you need to use to make your money.

The reason? Being a “jack of all trades” in your day-to-day life is a constant money saver and a resource. Knowing how to saute vegetables, fix a toilet, change the oil on a car, find information on the internet, and so on are all “jack of all trades” skills – but they’re constantly useful and can save you money in your day-to-day life. Making gourmet meals for 300, laying pipe for an industrial building, rebuilding a truck engine, writing 100,000 lines of computer code and so on are all “master” skills – ones that have less application in day-to-day life but are ones people will pay for.

Focus on mastering one or two skills and use those to make money. With the rest of your time, don’t be afraid to be a “jack of all trades.”

One thing to consider is that “downtime” is also useful. I consider that I wrote a significant portion of my PhD thesis when I was asleep (I would review material mentally before I went to bed and plan to write the next day having “processed” it in my sleep) or alternatively spend “processing time” doing some mundane household chore. Now I write complex psychological reports for a living and like to work at home where I can so when I get “stuck” on what to say or how to say it. I can do a load of washing or some other small task while I
am thinking about the problem. I try to schedule adequate “downtime” for that reason, particularly if I have very complex material to deal with.

– Carol

I actually often do the same thing. Many of my best ideas come to me when I’m in the shower or meditating or asleep or doing household chores. It’s almost as if the back of my brain is processing information while I do something else that doesn’t require a ton of active thought.

As you mentioned, a good technique for this is to review a bunch of notes before going to sleep or doing some sort of mindless work. For example, with my Making It All Work series, I’ll read a chapter and note the things that I think are key points, then go do something else for a while – take a shower, take a walk, meditate, or something like that. When I come back, I usually know which key points are going to stick, have some ideas of what to say about them, and have an example or two from my own life. The post just pours itself out from there.

Try it – it really works. Before you go to bed or take a shower or something, review whatever it is you’re wanting to think about or trying to learn. You’ll be surprised how much your brain processes while you’re doing something else.

I am 25 and my husband is 27. We just got married in June, and currently have about $25,000 in savings. We both recently got our Master’s degrees, and our debt is made up of student loans and one car loan. We currently have $48,000 of federal student loans at 6.8%, $9,000 of federal student loans at 2.5%, and a $10,000 car loan at 2.9%.

We live in a 2 bedroom apartment in a suburb outside of Boston, and our monthly rent is $1300. Our yearly income is about $120,000, and we are able to save my entire paycheck of $3000 every month. Basically we are unsure if we should use that money to aggressively attack our loans that are at 6.8%, or aggressively save for a down payment on a house. The way we figured it out, if we bought a house first we would have enough saved to do so in about a year and a half. If instead, we attacked the student loans, we would be done with the 6.8% ones in about a year, and then able to buy a house in two more years after that. All of our friends and family keep telling us that we should not miss out on this great time to buy, and that renting is a waste, but we are worried about getting into a mortgage and house before having paid off at least some of our debt. If we bought a house around $400,000 (which is on the very low end for this area) our mortgage payment taxes would be around $2500 a month, our utilities would be more, which is much more than we are currently paying in rent. We would also like to start a family within 2-4 years, and I have a sinking feeling that if we don’t get rid of the debt now, there will always be something to else to spend the money on once we have a house and/or kids.

So we are basically wondering what you would do in this situation? To us it seems to make the most sense to just keep renting for a few more years until we have no debt and feel more ready for a house, but its tough when everyone around us including parents and peers are telling us that is a bad idea!
– Lindsay

One baseline thing: don’t buy until you have a down payment big enough to avoid PMI. That’s just an extra cost that no one needs, and you’re far better off waiting another year than being saddled with a couple years’ worth of PMI payments. In a nutshell, that means save until you have 20% down (usually).

So, should you stay in the apartment and pay off other debts or start saving for a house? I really wouldn’t worry too much about how great the housing market is right at this moment. Guessing that prices will suddenly skyrocket up is akin to real estate speculation – and remember, just four years ago, people thought house prices would keep going on up to infinity. 2007 to 2009 alleviated some of those dreams.

If you’re content living in the apartment for now, your best move is probably to pay off the debts you have at the moment first. This will greatly increase your monthly cash flow and only delay your actual home purchase by a year or so.

The lone exception to this would be if you see the economy doing a major rebound and start hearing that the Federal Reserve is going to start raising interest rates. That’ll almost always correlate to rising home loan rates, which means you should switch gears and try to get a home loan sooner rather than later – not because of a thriving house market, but because the loans are so cheap right now. If waiting a year causes your 4% loan to go to 6%, you’re better off jumping in now and taking the PMI than waiting.

In the end, I think your best option is to sit tight if you and your husband are happy where you’re at right now. Get rid of your debts, which will improve your cash flow, then focus on the house.

I’ve been saving my Swagbucks to buy one of several things that I need. Since I’m really only able to use them on Amazon (as a gift card) shipping costs become a concern. So – for example, if what I want costs $10 and if I’ve got $15. to spend (which is “free” money) do I buy it on Amazon spending the extra $5. on shipping and the $10. item will really cost $15. or do I buy it in a store for $10. (but that is $10. out of my pocket?)
– Susan

I’m going to assume that this is normal gift credit on Amazon and that you’re not buying anything too exotic with the credit – books, DVDs, kitchen stuff, magazines, video games, etc.

If that’s the case, I would just wait until I have $25 in credit saved up from this program – or perhaps even a bit more than that – and then order from Amazon, using their “Super Saver Shipping” to get the item or items shipped for free.

That $25 threshold can be a dangerous one, though, if you’re just using money out of your pocket. It can be encouragement to buy more stuff – and that more stuff is often stuff that you don’t need. My solution is that whenever I see something on there I want, I just add it to my wish list instead of buying it. My family members and friends often trawl that list for ideas (and I’ve usually forgotten what I’ve added).

We have about $1000 cash we want to start our “baby jar” with. (My mother loves to tell the story of how my grandfather paid the doctor with a bag of dimes for her delivery,… $40 in dimes saved over 9 months in a jar on top of the fridge….but that was 1950.) What should we do with our money earmarked ‘baby’?

My husband thought we should buy a CD, but I thought that would be a mistake with the rates as low as they are right now. We plan to add to the fund every month, which also makes a CD a poor choice. We would like it to be something fairly “inaccessible” which was an advantage to the CD. What I was hoping you might know is if there is any kind of savings fund for “child expenses” like the education plans you can get where money must be withdrawn for tuition etc., except in this case the money is save for infant expenses. There’s probably nothing like that though, so what would you recommend we do with our $1000+.
– Kara

Unless you’re looking further down the road to educational expenses, the answer is, sadly, no.

What I would do in your case is spend some time right now figuring out what you expect for baby expenses. What will you need at the start? What about monthly costs? I can’t tell you what those will be because of the enormous number of variables there, but you can come up with some estimates on your own.

I would take enough of that cash to cover the startup costs and the first three months and put it in a six month CD. It does earn a little better than straight-up savings (usually) and has the advantage of being untouchable.

What about the rest of it? I’d open up a 529 for your child. You can’t do this directly yet, but what you can do is open an account for yourself and then change the beneficiary to your child once he or she is born. This way, the child will have money for future educational expenses, like college or (possibly) private schooling.

I’ve paid down most of my debt and now have about $500 on one credit card and about $6,000 on another. I have a $500 emergency fund and regularly put at least $500 extra toward debt each month. I also set aside about 15 percent of my salary toward retirement.

While lots of things are going well, unexpected expenses — like a big bill for dental work or a costly car repair — continue to trip me up. I have been thinking about setting up targeted savings accounts for home maintenance, car repair and medical expenses so I’m ready when these pop up. But should I wait to do this until I have paid off both credit cards?
– Pam

My suggestion would be to bump up the size of your emergency fund. $500 is a little low even for a single person. I would shoot for at least $1,000 – and preferably, I’d shoot for two months of living expenses (assuming you’re single).

Another step would be to not be afraid to use that emergency fund if you have to. If you can’t swing an unexpected bill – like a car repair – that’s the exact time you should be tapping your emergency fund. Then, over the next few months, replenish that fund and pull back on other things you’re doing with your money to make that happen.

So, for now, I’d pull back on extra debt payments and channel it into an emergency fund until it’s nice and fat. Then, I’d turn the extra debt payments back on until you actually have an emergency. Use your emergency fund, then channel the extra cash each month into the emergency fund until it’s replenished. Keep going and soon you’ll have no debt.

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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