Essays

Reader Mailbag: Friendships

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. Car seats
2. Graduation and internship question
3. Condo financing questions
4. Roth IRA worries
5. End of the tunnel
6. Anxiety
7. PMI worries
8. Cost of living abroad
9. Second mortgage or renovation fund
10. Gencon?

I am eternally grateful for the friends I have in my life. They bring me so much and I often feel as though I give so little in return.

Q1: Car seats
We are thinking of moving to a one car family. Our best bet would be to keep our Prius and get rid of our Trailblazer. We have three small children, though, and can not fit all three seats that we have in the Prius. What kind of car seats do you have??We have a 4 month old still facing backward, a 2 year-old, and a 3 year-old.
– Carrie

We have a 11 month old in a rear facing seat, a three year old, and a five year old, yet we can get them all in the back of our Prius with a few inches to spaare.

They are all Gracos, though I am not sure of the model numbers on each one.

If you haven’t, try putting the rear facing one in the middle. This is the only way the arrangement works in our vehicle.

Even with five passengers, we still get about 44 miles per gallon on interstate driving, so this is a huge boon with gas prices as they are right now.

Q2: Graduation and internship question
I just graduated last month – I have about $10k saved up from my part-time job while I was in school. But I haven’t worked for about a month now. I just got an internship working for a sports team in the Chicago market which is a great opportunity doing what I love to do (media/television). However, its unpaid. They require me to work about 15 hours a week from May to Sept – not even for school credit because since I’m graduated but just for “industry experience”.

My question is: I don’t want to work for this internship all summer and burn myself out and not get a paid position. Would you recommend, after a few weeks or a month, negotiating and approaching them to give me a paid job? I’m not even concerned about making a lot of money right now, just need some cash flow.

I do freelance on the side but thats not enough. I’m trying to find a salary job that will help me with all my finances. I’m also going to have to start paying off about $40k+ in student loans in 6 months.

How would you handle this situation? Would you take the internship?
– Patrick

I’d handle this situation by doing the unpaid internship for the length of it and doing the best possible job I could. I’d also make sure I built a strong connection with people as high up the food chain as possible.

A bit of money isn’t what will be valuable for you right now. What is valuable is an entry on a resume and a stellar recommendation letter. Do everything you can to get those.

You’re going to get a lot more attention in your industry if you have a glowing letter from someone high-up in a top organization.

Q3: Condo financing questions
My mother is planning to purchase a condo in a nearby 55+ community. The condo would be for my mother (60) and my grandmother (85). The purchase price is $225,000 and the monthly fees are $320/month. Taxes will be about $3,500/year. Closing costs will be around $7,000. Moving expenses will be around $1,000. The condo comes with all appliances and my mother plans to use her current furniture so there won’t be any major purchases associated with the move. She is approved for a 30 year mortgage with a rate of 4.875% or a 15 year mortgage with a rate of 4.1% and is required to put a minimum of 25% down. She plans to stay in the condo until she can no longer live there on her own.

Both my mother and grandmother are retired. My mother receives a pension of $58,344/year before taxes or $4,862/month before taxes ($3,570/month after taxes). She also has ~$70,000 in cash that earns ~1% interest and $175,000 (worth $140,000 after taxes at withdrawal) in a Thrift Savings Plan (similar to 401K) that earns ~3% interest at this point in time. My grandmother pays her own expenses out of her social security income, but does not have much savings and does not contribute to the household. My mother and grandmother do not have any debts or credit card balances.

With consideration for the interest she is earning, interest she would pay on a mortgage, and the value of the mortgage interest tax deduction, would she be better to:
A. Wipe out all of her savings and buy the condo without a bank mortgage? I could lend her the remainder she would need to do this.
B. Pay the minimum 25% down payment and take out a mortgage on the balance to take advantage of the mortgage interest tax deduction and maintain her savings? 15 year or 30 year? With 25% down, the monthly payment on the 15 year mortgage would be $1,256.70 and on the 30 year mortgage would be $893.04.
C. Pay an intermediate down payment amount between 25-100%. 15 year or 30 year?
D. Other suggestions?
– Kelly

I would not encourage your mother to empty out her savings to pay for this place in cash. That leaves her without any sort of emergency fund, which leaves her open to all sorts of emergencies. It also maximizes her tax bill for withdrawing from the TSP all at once.

For her purposes, I’m not sure there’s a huge advantage of a 15 year mortgage over a 30 year. With a 30 year mortgage, she’ll be 90 (!) by the time it finishes up, so the likelihood is that she’ll either have passed on or not be able to live there at that time. Because of that, this is more of a personal choice. If she pays more now (a 15 year), she’s more likely to own it before she needs to tap the value for care and she also is more likely to have an asset to pass on to any children. If she pays less now, it’ll be easier to make ends meet but it’ll likely have a bit less value when it comes time for care and she’ll probably pass on less value.

My only recommendation is to not tap out her retirement savings for this. She may need that emergency fund.

Q4: Roth IRA worries
I am a young professional who just set up a Roth IRA account but now have to go about investing that money — most likely in a target fund (for 2045 or 2050). However, with all the talk on the need to raise tax revenues and the current debate over the debt ceiling, what is the likelihood this IRA is and will remain a good investment for me as a young professional? If the roth is still a good option, should I consider going for a lower target fund (like 2030 or something) to ensure a bit more stability until some of this uncertainty plays out?
– Ashley

An IRA itself isn’t an investment. It’s merely a way to move taxes around. The investment is what you choose to do with it within an IRA.

Within that IRA, you can make all sorts of hedges against the dollar if you wish, but I recommend lots of diversification. Domestic stocks, international stocks, bonds, commodities, you name it. Your specific target retirement fund might be a good choice. It depends on what it’s made up of. I’d inspect the actual contents of the target fund before investing.

I don’t think an IRA is a bad choice regardless of the future of the dollar. How you invest within that IRA is another question.

Q5: End of the tunnel?
I am a college graduate (1995) with a computer degree. I have worked odd jobs to be home with my kids… 6 kids… Half the time I have been single. I am currently working a minimum wage job. This has been my first office job, and although I don’t make much money, I love the job itself and it definitely offers me the flexibility to be able to be a “momma” and work. Three of my kids are in daycare, which SRS helps me pay, along with enough help with food stamps that I can pretty much feed the family. It seems to me, that the harder I work, the further I get behind. I have started saving change to help at least save some kind of an emergency fund. I guess the main problem is that the more I work at the moment, the less assistance I get which sets me further behind in the long run. I have read your articles for a couple of years now, but I have never seen an article about this type of situation. I have done a lot of things you have suggested and I have made things better, it just seems no matter what I do, I’m trapped, especially until my boys are out of daycare. and considering they are 8, 8 and 7 years old, it won’t be for a couple of years. My income has been reduced by $500 a month, because the boys’ dad lost his job and isn’t paying child support. I have long come to terms with the fact that I need to be able to make myself financially stable without child support for this very reason. I’ve been thinking about going back to school and get my masters in therapy… but i’m more scared of just accumulating debt that will make my situation worse. Not sure what to do, or which way to turn… any suggestions?
– Amy

If your children are that old, you may want to consider looking for other families in your area that are in a similar situation that you can share afternoon child care with. If your work schedule is flexible, perhaps you can get off a couple afternoons a week to watch your children and a few others in exchange for having your kids covered a few afternoons a week. This might actually coincide well with going back to school.

If I were you, I’d keep on the father’s back about paying child support. He may be able to get some hardship protection now, but if he’s re-employed, he should be paying support.

As for going back to school, it really depends on employment options. Can you easily gain employment with the degree you will have? Will it immediately help you earn more money? I’m not talking about promises. What do real employment rates look like? Are there lots of job openings or are they rare? Don’t go back if it’s not going to put you in position for work.

Q6: Anxiety
I get really anxious in certain situations. Have you written about this on your blog and can you give me advice (blogs, books…) on how to overcome or work with this disability. I call it a disability, because I feel I have missed so many opportunities financial and personal. It has taken sometime to even write this email, but it is safer because it is email and not face to face. I believe it affects my job (advancement) and most important my marriage. My communication style is lacking at best.
– Oscar

If anxiety is crippling you to the point that it’s difficult to send an email, you should seek professional assistance with this problem immediately. This goes far beyond typical tactics for overcoming social nervousness and into an area that’s a significant life obstruction.

Bring this up with your primary care physician in a private meeting, just you and the doctor. Ask for a recommendation not for medication but for a referral to a professional who will help you through this.

Communication skills come with practice, but it’s hard to practice if you can’t bring yourself to begin.

Q7: PMI worries
I’m a naturally frugal person, so paying private mortgage insurance drives me nuts. I want to refinance and kick PMI to the curb, but I go back and forth on if this is the wise decision (or just me being persnickety).

I’m 24 with no debt besides a FHA loan (with 29 years remaining). With careful budgeting for retirement/tithing, I could set aside enough to have the 20% paid off in 2 years. Is this a smart savings goal? On one hand, this is a large sum of money used against a relatively low-interest (5.125%) loan. I could get a higher return on the money, at my age, with other long-term investments. On the other hand, I could take a 15 year loan and end up paying about the same amount as my current payments (by having a smaller loan, going down at least 1% interest, and not paying PMI). I’d love to hear your thoughts.
– Kyla

Paying off the PMI as early as possible is probably worth it. According to my back of the envelope math, you wouldn’t be in range to get rid of the PMI until about year eleven of your mortgage without accelerated payment, ten years from now.

Your accelerated payments would not only knock down the mortgage balance (and the interest paid, earning you a 5.125% return on your money from the mortgage alone), but it’d also earn eight years’ worth of PMI as well, which can really add up.

That becomes a pretty good investment. I’d make that my goal, assuming of course that you have a good emergency fund.

Q8: Costs of moving abroad
My son, a 25 yr old (single) PhD. student in San Francisco is studying biology. His grad work is primarily research project and science writing/publishing at this point, not classes. He learned that his lab director (and thus full lab) is relocating to Germany to a University there. He is being offered moving expenses and roughly the same salary as a grad student in Germany without benefits OR the chance to get his Masters from the US and get a 40% more in salary but not be a student in Germany.
How does one compare from US to abroad such things as:
cost of living?
taxes as an ex-pat?
access to health care while abroad? can you use German services?
cost or benefits (given US dollar’s weakness) of being paid in Euros and living in Euros for the next few years?

Obviously there are non monetary issues such as distance but this seems like a great chance for him – we just want to be aware of what issues, especially as he negotiates his salary/package, what factors matter.
He is in neuroscience as a student but very tech savvy and the lab director could hire him to be their programmer/tech support as he unofficially does that now. He would be still working on his PhD but as a side job, not a full-time – a flip of how it is now for him as full time student who assists as specialized lab techie.
Aside from the actual cost of going or not right now, there is the future (ie career) costs or benefits, which are much harder to determine.
– Connie

Most of the questions you ask should be addressed to the university to which your son is considering transferring. They have ready access to such information, as I’m sure that they often accept expat students.

My suggestion, honestly, would be that he step back and take a serious evaluation of where he wants his career to go beyond this job choice. Don’t worry so much about the dollars and cents of today, but about which option opens the most doors over the long run. His PI should be able to help with this, if he/she is worth his/her salt.

The big question is if this is really a path he wants to follow.

Q9: Second mortgage or renovation fund?
I have been working on my finances using the Dave Ramsey system for the past few years. I now have cars paid off, 20k in an emergency fund (about 5 months), save ~16% in retirement, save towards the kids college (though not enough, I’m sure) and now I am at the “pay down your mortgage step”. We have a primary mortgage that is 232k that we are in the process of using the HARP program to decrease our rate from 6.125 to 5.125% which will save us ~$200 a month. We also have a second mortgage that is $36k at 7.325% (payment is $313, but I have been paying $400/month for a while). The second mortgage was done to avoid PMI when we bought. My husband and I save $1300 a month that was going into our emergency fund, but now that is funded, we have it going into our “renovation fund”. Eventually we would like to put an addition on to the house, unless at that point we have saved so much money that we may be better off trading up vs. renovating. (If it would cost more to renovate then trade up). Our house is worth $255k according to the recent appraisal we had done- so we are underwater (we bought for $305k in 2006). So my dilemma is this. Do we try to pay off the second mortgage- which if we put in the extra $ from the refi ($200) plus the $ that we are putting into the renovation fund ($1300), plus the $ we are currently paying on the loan ($400) for a total of $1900- which would get the second loan paid off in less than 2 years. Or should I use the $200 refi $, plus the $400 regular payment, plus maybe $300 of the $1300 savings money towards the second loan (total of $900/month) and then $1000 towards the “renovation account”. I am not sure if there is a benefit to paying off the second mortgage or not. If we were dead set on just renovating then I would think to pour it all into renovation. But, because we would consider moving, that’s why I am not sure if we should tackle the mortgage. We both have steady jobs, making about $80k each, and I started a home party business that is doing well and helps supplement the income for spending money and extras.
– Karen

If you’re considering trading up in the short term, I would maximize your cash on hand. You’ll need it for the expenses of that move, both in the paperwork and otherwise.

If you’re leaning toward trading up longer down the road, I’d get rid of that second mortgage so that you’re not underwater on the house and won’t have a shortfall to make up when you sell.

If you’re leaning toward staying put, I’d put at least some of the cash into a renovation fund and make the most of what you have.

In other words, the best choice depends on what you want. None of the decisions are strictly economically better than the other one, especially when considering what your other priorities in life are.

Q10: Gencon
You’ve mentioned before that you attend Gencon. I assume you’ve already signed up this year. What events are you attending?
– Rob

I mostly wander, to tell the truth. I try out a lot of demos of board games I’ve never tried in the demo room. I’ll play in a few specific events with people I already know, but we usually fill up all of the tickets for those sessions.

Much of the time, though, I’m in the open boardgaming room. In there, the organizers stand you in a queue and fit you into all kinds of board games. Someone wants to play, say, Carcassonne, so they ask people in the queue if they want to play. Once they have enough, the game starts. Since I usually go there to play a wide variety of games with a wide variety of people, this is a great place for me to be.

Although I’m not organizing any events there or anything, I’d be happy to chat and sign my books if you bump into me there.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.