What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Credit card as emergency fund
2. Handling proceeds from house sale
3. Relationship with an irresponsible spender
4. Reducing cost of haircut
5. Lifelong learning and social challenges
6. Buying minimal kitchen gear
7. Protecting against forgetful mother
8. Getting rid of tobacco smell
9. Uses for old coffee
10. Tapping Roth during unemployment
11. Irked by constant donation talk
12. Question about freemium apps
I love the feeling of a fresh start.
I love the sense that I have a new chance to do things the right way.
I love an empty, blank page at the start of a notebook.
I love the start of a new school year.
I love the first real conversations of a budding friendship.
The world is full of possibility and promise.
Q1: Credit card as emergency fund
I recently ran into some inheritance. I paid 1/2 of it to my student loans, put 1/3 into a Roth IRA, and have 1/6 of it to something else.
I was thinking about starting an emergency fund and was plugging some numbers and it’ll take me 2-2.5 years to get 8 months worth of emergency money together. However I was thinking if I used my credit card (zero balance with $5k limit) as PART of my emergency fund would that be a horrible idea?
I ‘ve read a few articles about how using a credit card for an emergency fund is idiotic, but if I had double what $7k saved, and the $5k of credit card would that be a decent buffer?
The main reason I ask is because I don’t want to not Max out my ROTH for 2.5 years. I want to try and Max it out every year.
– Shaun
There’s nothing wrong with using a credit card to resolve a personal emergency. If your car breaks down and you have a $1,500 bill at the shop, sure, use a credit card to pay it.
The problem comes around when that bill comes in. Do you have the cash on hand to just pay off that credit card in full? If not, that bill becomes $1,600, then $1,700, then $2,000 in rapid succession thanks to high credit card interest rates.
Your emergency fund is the cash you have, period. The risk of using a credit card for any of your emergency fund is that you wind up carrying a fat interest-devouring balance on that card if your cash emergency fund becomes tapped out. There’s also a risk of the credit card itself being part of the emergency – for example, if your card is stolen or lost or the company cuts your credit line or your identity is stolen.
A credit card can be a useful tool for paying for that emergency in the short term, but all you’ve done there is transfer the cost of the emergency onto your card. You still haven’t actually dealt with the cost of that emergency yet. That’s what a cash emergency fund is for.
The other, unsaid part of your question is how much emergency fund do you need in your life situation? An eight month emergency fund is a noble goal, but the truth is that you probably don’t need quite that much, especially if you’re single. I do not know the specifics of your life situation, but you may want to consider the idea that a smaller emergency fund, period, is what you actually need at this point in your life. If you are single and building to eight months of living expenses in your e-fund by the end of the year is cutting out some Roth contributions, it is a sensible financial choice to shoot for a smaller e-fund for now and make that contribution. You can always grow that e-fund later.
Q2: Handling proceeds from house sale
My husband and I are selling our house as we are moving abroad for a few years. We’ve been very lucky, and will be putting away over $100,000 in cash after all the expenses. I’m wondering what the best thing to do with the money — keeping in mind that we want to use it for a down payment on a house in the future (probably within 3-5 years). Because of that, I’m leaning towards extremely risk averse investments, maybe putting some in a 3 year CD, putting some into bonds. But I’m not sure if that’s too timid. What do you think?
– Monica
I don’t think that’s too timid, but it does depend on your broader goals.
The reality is this: if you put your investments into anything more aggressive than the options you’re listing here, you’re running at least some risk of losing at least some of your balance over the timeframe you describe (three to five years).
Over a three year period, you run a substantial risk of losing money in stocks or real estate. That’s because you might invest right at the start of a downturn and the market will not have recovered from that downturn in time.
If you stretch out that timeline to ten or more years, the average return on those riskier investments will get closer and closer to their long term averages, which are nice and positive. You’ll make money, in other words, but only if you have a lot of years before you’re going to use that money. You don’t – you only have three or so.
Given what you’re describing – an intent to return to America and buy a house in three or so years – I think the safe route you’re describing is the right one. Good luck.
Q3: Relationship with an irresponsible spender
My boyfriend is 20 years old and I am 19, we live in a rural area of South Australia. We live on a property that the company he works for owns so we pay no rent, water bills or electricity bills. He currently has around $35,000 in debt. He has two credit cards, one personal loan for a dirt bike and a car loan around $25,000.
The problem is he LOVES his life the way it is, living paycheck to paycheck, whacking things on credit cards and etc. The car I mentioned isn’t his only vehicle he has. He also has another car and a road bike. He cannot afford to register everything so he alternates between the ute and car. His parents taught him that he should have whatever he wants if he can afford the minimum repayments, and don’t worry about how many years it takes to pay off or how many thousands in interest.
I have tried to talk to him about paying things off early, getting rid of the credit cards, I’ve spent him links to your incredible site, The Simple Dollar, I’ve tried demonstrating some good choices with my own decisions for finances but he refuses to change. He won’t do one single thing to change how he is right now. I don’t know what else to do to change his mind as one day soon we will leave this area and move to a city or large town and he won’t be able to afford his lifestyle. I am worried about how will happen and how I will suffer in a few years when we leave somewhere that isn’t free and I would like to buy a house around 23-24 years old.
What you recommend if you were in my shoes?
– Tamara
As the old saying goes, “You can lead a horse to water, but you can’t make him drink.”
In the end, your boyfriend’s willingness to be financially responsible has to come from within him. You can’t make him change into a person that he isn’t already. He has to go down that path of change himself. You can drop bread crumbs and hints and reading material all day long, but unless he internally understands the purpose of doing so and feels as though it’s more important than maintaining his day to day life as it is right now, then nothing is going to change.
What you have to ask yourself is whether or not his current habits are something you can live with and whether or not you’re willing to stick around for the years or decades it takes him to figure it out (if he ever does) and, along the way, likely have lots of money fights.
I can’t tell you which is the right path. Some couples can survive fundamental financial differences of opinion, some cannot. However, I can tell you that you can’t make him change his viewpoint on this; he has to figure it out and change it himself.
Q4: Reducing cost of haircut
For the last twelve years I have gone to the same barbershop twice a month where they trim my beard and give me more or less the same haircut. It costs $36 per visit now.
I would like to reduce this cost but it is not so easy. I have gone to other barbershops to get the same cut and they never do it quite right. I simply don’t trust any other barber to get my hair just how I like it.
On the other hand, $72 a month on my hair just seems ridiculous.
What are my options here? From my perspective my options are to stick with this barber and be satisfied with my cut and spend $72 a month or to switch barbers and be less happy but spend a lot less a month.
– Jerry
I think you’re missing a third option, which is to switch to a lower-maintenance hairstyle that you are happy with that you can either manage yourself or manage with the aid of a lower-cost barber.
Take me, for example. I have a very simple, low maintenance hairstyle. I maintain it myself with electric hair clippers – I just use a 4 attachment on the top, a 2 attachment on the side, a fader to help with the transition between the two, and a razor to trim around the very edges. I go to a barbershop very rarely any more, and it’s mostly to help me trim in spots that I can’t see well if my wife isn’t available to do it.
This wasn’t always my hairstyle. What I actually did is experiment with different hairstyles until I found one that was really, really simple that I was happy with, and then I watched Youtube videos and practiced until I was happy doing it myself. I didn’t nail it the first time, so I had a barber “fix” a “bad haircut” a few times, and I fixed it myself a few times by just cutting it super short.
When you find that easy cut, though, you’re going to be saving about $72 a month, and that’ll make a real difference.
Q5: Lifelong learning and social challenges
I am a 43 year old engineer and lifelong learner. I have a good engineering job with the state that affords me the flexibility to take a class each semester at the local state university. My boss lets me out of work to go to class unless there is a meeting that interferes, as long as I make up for that time by coming in early.
The problem is that the cost of university has gotten so expensive that this one class is costing me about $2,000 to $3,000 a semester.
“John,” you might ask, “why don’t you just check out books from the library or read the textbooks for the class?” I vastly prefer social learning. I like meeting up with people for study groups, both college students and other older learners like myself. I participate a lot in online discussions for the classes. It’s that “social” element that really makes classes preferable for me.
The problem of course is that $2,500 a semester. I usually take three classes a year as I meander toward several degrees, so that’s about $8,000 a year, give or take.
I am trying to brainstorm some ideas for how to continue this type of lifelong learning while cutting back on the cost per year. What ideas do you have?
– John
I’m a lifelong learner myself, but I tend to get the most value when I find very quiet places to deeply read a book and take notes on it without distraction. When I have questions, I usually just find a forum on the topic that I’m interested in and ask in a super-polite and respectful fashion, and I usually get the answers I need. Unfortunately, that’s not a particularly social form of learning. So here are my best ideas for low cost social lifelong learning.
My first thought is to look into sitting in on these classes. Perhaps you could simply go to the first session each semester and just ask the professor for permission to sit in on the classes. Some professors are very open to this.
Another avenue is to try taking an online MOOC through a site like Coursera. While this perhaps limits your face-to-face interactions, the discussion forums for such classes tend to be very lively and you can’t argue with the price.
A third option is to look for meetups in your area, or groups run by the local library, that cater to lifelong learners.
Q6: Buying minimal kitchen gear
Moving into an apartment for the first time. What is the minimum stuff you need to cook a lot of easy food at home (pasta, eggs, grilled cheese, maybe a casserole)?
– Jane
Here’s what I would stock a kitchen with if you’re assuming that your goal is to just make a few basic dishes.
I’d buy two knives – a chef’s knife and a paring knife – along with a cutting board. You can buy Victorinox knives for about $15 that work really well, and any cheap plastic cutting board will do for your first board.
I would buy a large sauce pan with a lid, a large nonstick skillet with a lid, and a large (6 quart to 8 quart) pot with a lid. This will handle everything you might cook on the stovetop until you get into some pretty complex things. You’ll also want a strainer if you’re going to be making pasta.
For the oven, get a single Pyrex 9″ by 13″ baking dish. That’ll serve for almost anything you might want to bake, too. You may want to get a single baking sheet, too.
For utensils, I’d buy a solid plastic spatula that you can use to flip sandwiches, a ladle for serving soups, and a large fork that can be used for things like serving pasta.
I’m assuming your apartment has a microwave and an oven/stovetop already. You may also want a toaster or a toaster oven. I find a slow cooker to be indispensable, but it’s probably not strictly needed at first (I love just tossing in food in the morning and having a meal ready to go in the evening).
Add to that cups, plates, forks, spoons, and knives for eating and you’re going to be prepared to make a lot of stuff.
You can get most of these items at Goodwill pretty cheaply. You can also add to it as needed.
Q7: Protecting against forgetful mother
I am 52 years old. Several years ago my mother added me to her checking account after my father died as a financial protection. She is now in her early 80s and is getting really forgetful. In the past month she has overdrafted four times, something she would have never done before. She writes checks and doesn’t keep track of them very well and then writes too many. I have quietly taken care of the overdrafts. She uses a small local credit union and I have spoken to them there and told them what was happening and they said they would contact me for future overdrafts and suggested I set up an overdraft protection savings account, which I have done.
So, several concerns here! Should I talk to my mom about this? How can I protect myself financially? How would you move forward?
– Nina
If I were in your shoes, I’d have a gentle heart-to-heart with my mother. I’d sit down with her along with the details and statements regarding the overdrafts and explain what’s happening.
The challenge is that most people in slow decline generally want to maintain independence as long as possible, which is completely understandable. This is likely to be one of those arguments. I remember vividly when my mother started taking care of more and more aspects of my grandmother’s life when she was in gentle decline – it was difficult for everyone.
My suggestion is that you simply ask your mother for suggestions on how to progress. Point out the cost of overdrafts to her and suggest what you would be willing to do – taking over bill pay for her and so on. You should definitely leave some windows of independence for her, such as buying groceries and buying gifts for people, but put some caps on those expenses and watch her carefully.
She may be resistant to all of those changes. She may just want you to take over everything. The likelihood is that she’ll land somewhere in the middle. Just remember, she is your mother, she has been independent and self-sufficient for many many years, and this is incredibly hard to not only start losing self-sufficiency but to now be taken care of by the person she spent a lot of her life raising and taking care of herself. It is a huge adjustment. Treat it with care and love and understanding that this is incredibly difficult.
Q8: Getting rid of tobacco smell
For the last four or five years, my father has lived in our basement. Recently, he moved on to a retirement home. He was asked not to smoke in our house but he would sometimes smoke in his basement room with the window open and the fan running to blow the smoke out. There is still a smell in there. I am not sure how to get rid of it. We wiped down the walls and ceiling with vinegar and used a carpet cleaner in there but I can still smell it. What else can we try?
– Karen
The first thing I would do is put out a lot of baking soda in the room. Sprinkle it on every soft surface in the room and on all furniture surfaces and windowsills. Put it everywhere until it looks like you had a dusting of snow in the room. Next, walk around the room to mash it into the carpet and rub the baking soda into every surface you can find, and then leave it in there overnight. The next morning, brush all of the soda onto the carpet and vacuum it up.
I would re-wash the walls and ceiling very carefully with a mix of 1/3 vinegar and 2/3 water. Do it very slowly and replace your liquid frequently. Yes, you’re going to use a lot of vinegar doing this, but that’s okay.
If that doesn’t work, look into renting an ozone machine for a day. Just google “ozone machine rental” and see what pops up. You can often rent one for the day for $20 or $30. Rent it early, run it in the offending room all day, and then let the room air out afterwards.
Q9: Uses for old coffee
What good uses are there for old coffee? I make a pot most mornings and usually end up tossing out a cup or two of it. Surely there has to be a use for that much wasted coffee.
– Jana
I sometimes turn leftover coffee into coffee ice cubes. I dump it in an ice cube tray and freeze it. Then, later on, I’ll put several cubes in a glass and add milk and let the cubes start to melt for a really good cold drink.
My neighbor sometimes uses old coffee to clean his grill. This, to me, was a novel idea, but it works pretty well, especially after barbecuing a lot of meat. I think it’s the acid in the coffee, and he swears the grill smells really good the next time he barbecues.
You can dump it into your compost bin if you compost, along with any coffee grounds.
There are a lot of culinary uses for coffee, too. You can usually keep it in the fridge in a closed container for a day or so before using it. It’s great as an ingredient in homemade ice cream or frosting or cake or cookies, for example.
Q10: Tapping Roth during unemployment
I recently lost my job. Luckily I have unemployment insurance so things are okay for the moment but I have questions about what to do when the insurance runs out if I don’t have a new job. I basically have two choices for any unemployment that lasts for a while: tap my Roth IRA balance or sell my house. I’m probably too stuck on maintaining life for my family but selling the house is the last resort option. My understanding is that there are no tax penalties for just withdrawing the amount I have contributed to my Roth. Correct?
– Jim
Yes, that is correct. You can withdraw your contributions to a Roth IRA without penalty. Penalties come in when you withdraw earnings from a Roth IRA before retirement.
However, you should exhaust everything short of selling your house before tapping that Roth IRA. Once you tap those contributions, you can’t replace them in the future. Those contributions are gone – all you have going forward are your normal annual contribution limits each year.
Look into doing other things, like starting to live super-lean right now and selling off unwanted possessions, to stave off urgent moves like tapping out your Roth IRA. That should be your next-to-last move.
Q11: Irked by constant donation talk
I have been a member of a church in my town for about fifteen years. I go most Sundays with my family. In the last few years, they have constantly asked me for money, money, money and it is getting tiresome. I already give what I consider to be a very healthy amount to them and yet they still keep asking for more, with someone going up in front of the church every week asking for more and sending home notes and pledge cards and stuff like we’re not donating.
Other than the donation talk I like the church a lot. I am trying to decide what the best way forward is. Should I talk to someone about toning down the money talk?
– Mark
Here’s the reality: the church is probably really struggling to make ends meet, keep the power on, keep paying the pastor and the organist, continue with the charities they’re obligated to support, and so on. It’s likely that donations aren’t currently meeting their budget and so they’re doing everything they can to get a few more dollars from the congregation.
I don’t think that’s the right approach, but for the vast majority of churches, that’s the reality right now. They’re pledged to a ton of little local charitable gifts and they’re just not getting enough support from their congregation. So, many of them just keep repeating the strategies that worked in the past (asking for donations, passing out pledge cards) but they don’t really work any more and they don’t work if repeated too much.
Rather than leaving the church, you should ask to talk to whoever is in charge of stewardship at your church and simply state that you’re finding the constant hectoring about giving to be alienating and that it’s driving you away. Get involved with stewardship and try to nudge it in new directions that might be more successful. Perhaps rather than begging for money, they could seek out volunteers who could take care of tasks that are currently being paid for, which enables the budget to lower. Maybe by getting more people involved, people might be more likely to donate when they actually directly see the need rather than being talked to about it.
To me, this sounds like a group that is struggling and doesn’t know how to change into a new mode of operation. Rather than looking at it as alienating you, look at it as an opportunity to help a group you otherwise love.
Q12: Question about freemium apps
Can you explain to me how apps that are free but offer a “premium” version stay in business when the free version is perfectly good enough for almost anyone? Like Evernote for example. I started using it at your suggestion and use it almost every day but I can’t see ever needing any of the pay upgrades. How do they stay in business?
– Alex
I am an Evernote Premium user. I do not use all of the features that come with Premium, but I do use some of them.
However, the real reason I have the Premium service is that the overall value that Evernote offers to me is such that I never, ever want to see it go away. I want Evernote to still be around when I’m 70. It is a tool that provides a ton of daily value for me.
The only way I can make sure that it stays around is to support it, so I do. I signed up for the Premium plan. I use Evernote a LOT, but Premium is still overkill for my usage of it. However, I want the service to stay around, so I’m willing to pay.
If you use a piece of software so much that you rely on it daily, then I think it makes sense to support it over the long haul. I think that the “subscription” model is the one that makes the most sense for software that people expect to constantly be updated. Buying it once and then expecting free updates forever is not a reasonable model for a business – you’re basically guaranteeing their eventual bankruptcy.
That’s why I support Evernote. If I find myself using any other piece of “freemium” software so much that I’m reliant on it, I’ll similarly support it.
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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 many, many questions per week, so I may not necessarily be able to answer yours.
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