Reader Mailbag: The “Tool of the Month”

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. Other investing options
2. Social media and career value
3. Dating expenses and budgeting
4. Struggling with lots of debt
5. Store credit card drawbacks
6. Credit limit increase
7. Planning to move next year
8. Donating to public radio / television
9. Recurring fee
10. College savings thoughts

Every few weeks, a reader will send me a link to a really neat tool that works really well for organizing thoughts or taking notes or making checklists. I’ll use it extensively for a few weeks, as I appreciate the little innovations that it brings.

Eventually, though, things cool off and I find myself going back to old tools. There are some tools, like Evernote, that I’ve just used for so long that I know all of the keyboard shortcuts and other tricks for making that tool really hum.

There are many, many great tools out there for note-taking and list-making. I think having one or two that you consistently use is really essential, but I’ve also found that when you get really used to one, it’s hard to switch, even if new toos show a lot of promise. That knowledge of keyboard shortcuts and other tricks that you’ve built up over time adds up to a lot.

Q1: Other investing options
What other options are there to invest money aside from funds and policies? I’m from SA but have lived in Europe for last few years. I’ve invested in policies in SA since I was 22, starting off with $50 a month. Living in Europe, I see pharmaceuticals make up a percentage of most investment funds. I don’t want to participate in a fund that has pharmaceutical companies in its composition, yet these are the high growth funds. Where else would you suggest I look to invest money?

I’m in my mid thirties, debt free aside from a small mortgage (8% of net income monthly), save for my pension through work, and have investments in SA.

I like the idea of saving 25 times of my annual spending to become financially free. I don’t really want to save extra into a pension to be accessed when I am 67 (Ireland’s definition of retirement age for my generation). I’d prefer to look at something with a timeline of 10 years.

I also earn money through freelance writing, which I save in a money market account, paying marginally more interest than a standard bank account.
– Karen

You can choose to invest in a bunch of individual stocks that match your personal values. One option would be to simply put aside $100 a month and once every six months or so, buy a lump of shares in a single “buy” of an individual company’s stock. Then, in six months, buy another company’s stock.

I would spread out the buys like this so that you reduce the impact of brokerage fees. I’d also encourage you to buy lots of different companies over time to spread out your risk so that you don’t have all of your eggs in one basket.

Another option is real estate. You could purchase a second home and rent it out, using that rental income to either pay off debts or save for another rental. Once you own enough of them, it can provide sustained income for you.

Q2: Social media and career value
Is there actually real career value from being on Facebook or Twitter? I used to have a Facebook account but I closed it down in 2011 and I have never been on Twitter. It just seems like a time waste to me. I suppose I could use it to keep tabs with work connections but doesn’t email do that?

– Angie

For some people, Facebook makes it easier to keep tabs on professional s and build a stronger relationship with them. You can see the various things they post and comment on them. A similar phenomenon exists on Twitter, where you can exchange thoughts with people in your field quite easily.

The real question is whether it’s worth the time investment. I think it depends on your career path, honestly. Does your career place a lot of emphasis on having a large professional network? If so, it’s worth your while to be on LinkedIn, Facebook, and Twitter. If your career doesn’t have that emphasis, it’s much less important.

Some people overvalue the importance of social media in careers, while others undervalue it. You shouldn’t feel guilty for not using it if you don’t see a good career purpose. On the other hand, if your career is about building connections, you should probably be on social media.

Q3: Dating expenses and budgeting
I go out on dates once or twice a month. Should I actually have a “dating” line item in my budget or should I fold it into other things?

– Erica

If I were dating only once or twice a month, I’d probably fold that money into “entertainment,” honestly. If you were going on one or two dates a week, I’d say that dating was a significant part of your life, but at your rate, it’s not a major focus, just one of many.

That way, you can make decisions about the relative importance of all of the things you do for entertaining yourself, including dates.

Of course, when I was actually dating Sarah, most of our dates were free. We went to a lot of free concerts and club meetings and the like. You may actually have limited dating expenses, which would make this decision even easier.

Q4: Struggling with lots of debt
A friend of mine recommended me to your website and to email you to see what type of advice you could offer for someone in my situation. I have 2 credit cards, one of them has an interest rate of 27%, $2500.00 and the other 12%, $9000.00. I racked both of these credit cards up while I was in college from 2007-2011. I have several student loans, Sub/Unsub government loans, American Education Services loan, 2 Sallie Mae loans, and three private bank loans. The interest rates vary from 2.74 – 12.20%. I have several student loans due to cosigner issues. All these loans are roughly close to $150,000.00

I don’t know if you can offer any advice about consolidation. I really don’t know where to start. I do have some money in my savings, for emergency. I got this information from reading one of your blogs. :) The next step I was going to take is to pay off the highest interest rate credit card. The student loans is the problem right now. I don’t know if I would benefit from putting one of the loans in forbearance, for a few months? I could put the extra money on the credit card?
– Sandy

The first thing you should do is set up a debt repayment plan. There are a few options for doing that – you can either order them by balance or by interest rate. Given that you have a lot of loans, most of which are likely higher than that frightening 27% credit card, either ordering will probably work pretty well, so I’d probably order them by balance, smallest to largest. Your goal should be to throw every extra dollar you can toward the debt at the top of that list. This gives you a plan for the next few months while you figure out consolidation; you’ll want to re-make this debt repayment plan after you consolidate.

The next question is consolidation. Your goal with consolidation should be to reduce interest rates above all else because that’s how you’ll actually save some money over the long run. If you make the term of the loans longer – meaning you stretch it out to 20 or 30 years – you’re going to pay more interest over the long haul unless you make a lot of early payments. So, ideally, you’re going to want to consolidate into the shortest and lowest interest loan that you can reasonably afford.

So, how do you do that? You have a couple of options depending on your situation, which are summarized here. If neither of those meets your needs, you might want to consider finding a local credit union and stopping by to see what they can do for you (if nothing else, credit unions can provide good direction about what steps you should take if they can’t help you).

Q5: Store credit card drawbacks
You were pretty hard on store credit cards a while back. Why not just sign up for one to get a big discount on an expensive item, pay off the balance, and just sit on it?

– Tammy

Here, I’m just talking about store credit cards. I am not talking about MasterCards and Visa cards that have bonus programs tied to various stores.

There are a few reasons not to do this. One big reason is that you’ve essentially given the company permission to send you a bunch of junk mail. Another reason is that you now have another route for identity theft open. You’re also accepting a “hard pull” on your credit report, which has a temporary negative effect on your credit score (this won’t matter unless you’re applying for a loan in the next three to six months).

If those factors don’t add up to much for you, then your plan is fine. However, before you do it, look around for cards that offer bigger signup bonuses. There are some cards, like the Chase Freedom card, that offer huge signup bonuses, on the order of $100.

Q6: Credit limit increase
My credit card just raised my limit from $4,500 to $9,000. That’s a huge balance that kind of scares me. Should I ask them to lower it?

– Angela

Assuming you have healthy credit card practices – you pay off the balance in full each month, you watch your credit card statements – this shouldn’t matter at all and should have a mild positive effect on your credit score by improving your debt-to-credit ratio.

If you don’t pay attention to your statements and don’t pay off your balance each month, not doing those things is the real worry here.

In short, I wouldn’t stress about it. If you’re making good choices, this is a positive thing.

Q7: Planning to move next year
Just to give you a little background. My husband and I are 55 and 44 years old, respectively. Our home is paid off outright and the only debt we have is a car loan. Due to the severity of my SAD (Seasonal Affective Disorder) we are making a move to a southern state, where we have family by the summer of 2015. Our plan is to buy a modest home paying cash for it with the proceeds from our current home sale. We also plan to have at least two years of living expenses in the bank while we look for work, as well as the funds to pay for our moving expenses using cash. I also plan to stock pile lot of non-perishable food items to diminish our food cost for a while. It will cost us nothing to transport the stock pile. We will not have any dependents because our young adult sons will remain in their home state. We will pay off the car loan prior to the move, leaving us debt free. I plan to transfer my teaching credentials to the new state and enroll in the ObamaCare for health insurance. Do you have any suggestions for us or anything else we should consider to make our move as smooth as possible?

– Denise

I completely identify with Seasonal Affective Disorder. I get it myself. Winter sometimes hits me hard and, over time, I’ve had to figure out several tricks to get through the season. For me, Vitamin D is essential, as is direct sunlight.

It sounds like you have things planned out. If I were you, though, I’d start looking for a job in the area months before you move. If you’re going to move in July, start looking in February or March. Since you’re a teacher, that’s a prime time to start looking for jobs in that area.

Take a visit to the area a month or two before the move to settle details and do any job interviews at that time. The more time you give yourself to find a job, the better off you’ll be.

Q8: Donating to public radio / television
I listen to NPR every day on my way to work and my way home. My children watch many shows on PBS too and we watch a few evening shows like Downton Abbey. We have never donated and I was talking to my husband about this last week. I feel kind of guilty for not donating but should I?

– Natalie

NPR/PBS use a different model than other television and radio stations. Other stations rely on advertisements for revenue. NPR/PBS relies on donations. The obvious reason for that is to make NPR/PBS free of the agendas of advertisers.

So, should you donate? The difficulty here is assessing how much your attention is worth. When you listen to a commercial station, you’re being handed a bunch of advertisements that are, on some level, altering your perceptions about those products in favor of what the advertisers want. What is that costing you? What is it worth to you to avoid it? This is basically the logic I’ve used in the past for supporting PBS, because their children’s programming made up the entirety of my children’s television watching for years. I was glad to find such solid educational material for them.

There’s also a “tragedy of the commons” problem with NPR/PBS. No one has to donate, but if no one donates, the service goes away.

So, should you donate? I think that if you’re feeling guilty about it, you probably recognize that you’re getting some additional value from NPR/PBS beyond what you get from commercial stations. That probably warrants a few dollars from your monthly entertainment budget.

Q9: Recurring fee
My bank has always charged me a monthly fee of $25 to maintain an ATM card. I told my friend about this recently and she was shocked by it and says she pays no fee. What do other banks do? Are free ATM cards standard?

– Andrew

Yes, free ATM cards are pretty standard offerings from banks today. I don’t think most banks have charged $25 a month for an ATM card for a very long time, if ever. That’s a pretty hefty fee.

Unless you are getting an amazing interest rate on your accounts, I would consider that $25 a month to be an unacceptable fee. It adds up to $300 a year!

You should ask your bank to waive this fee. If they won’t do that, I would start looking around for a different bank, because that’s really, really outside the norm for a fee.

Q10: College savings thoughts
We have a 3 year old daughter and I wanted to see how much money we should be setting aside in her college savings account. We have a small investment account ($14,000) and a 529 plan ($5,000) set up and plan to make annual contributions, however I am not sure what amount is our end goal and how much we should be contributing as well as keeping in line with our other retirement savings, etc.

– Andrew

There is no “perfect” end goal for savings because it depends not only on your own personal goals, but also on your child’s educational progress and what happens in higher education over the next fifteen years (I see major changes coming).

Do you intend to pay for your child’s entire education? Or do you just want to help with part of it? Do you expect your child to go to a local public university or an expensive private one?

If I were you, I’d make sure that your retirement was well covered first, then I’d just save a little out of what’s left over. You’ll do the greatest service to your daughter by never being a financial burden on her when you’re old.

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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