Reader Mailbag: Vehicle Shopping

My wife and I have looked at somewhere around a dozen vehicles in the last month as we search for a replacement for my truck that will be capable of seating five (and preferably capable of seating more).

Rather than rushing in and just buying the first option we find that minimally matches our needs, we’re being patient. We have the cash sitting there to write a check for the vehicle we want in the price range we want.

Now we wait. And test drive. And wait again.

I have a friend who [in my opinion] is not in very good financial shape and has just borrowed a lot more money from the bank to purchase some more property hoping to make a return on it & for this to help him financially in the long run. It was bought as an investment but I find it very risky. If him or his wife lose their job and are not able to lease/rent the property commercially, then they will be in a lot of trouble. Their finances were not good to begin with and I was horrified that the bank even loaned them the money. If this was 20 years ago, this wouldn’t have been possible, the bank would have never lent them the money but I am finding that banks are more and more willing to put people in financial jeopardy, they don’t care. Although I highly believe in investing money, I don’t believe that going way over your head [even if it is for the right reasons] is ever a good idea. I wanted to suggest that they reduce their costs, pay off a lot of debt before they got into this situation but decided against it.

All that being said, I came very close to telling him not to do it but knew it could put some stresses on the friendship. I have some regrets but at the same time, he is an adult and in my opinion it was not my place to determine whether he should have done it or not.

How do you feel about confronting friends with possible bad financial decisions? Friends are supposed to try to prevent each other from big mistakes but is it crossing the line if we meddle with their bad financial choices?
- Tina

I don’t think you should “confront” your friend about it. The best thing you can do here is to try to help him logically think through what he’s doing a little bit more.

The route I would take is simple. I would tell him that I’m really interested in how he’s able to make these investments and ask to see how he pulls it off because you’re thinking of trying it, too.

As he explains it, ask lots of questions. Make some of them positive ones so he can talk about the positives of what he’s doing, but make sure some of them do address the seemingly heavy risks of what he’s doing, like asking “what happens if you lose your job?”.

At the end, you can simply say, “I’m glad that works for you, but it’s just way too much risk for me. I would never want that much risk on my shoulders, because if even a little thing goes wrong, the whole thing crashes down.” Or something to that effect.

March Madness picks, please (so we can laugh at how awful your picks are)!
- Len

My brackets are usually pretty boring. I have a couple 11s over 6s and one 12 over a 5 (Cornell is the best Ivy League team I’ve watched in a very long time) – other than that, I have almost all the favored teams winning the early rounds.

My Final Four is Kansas, Kansas State, Kentucky, and Duke. I have Kansas and Kentucky in the national title game, with Kansas winning it all.

Of course, most of this will turn out to be wrong, as it does with most of the brackets people pick.

My boyfriend and I are seriously contemplating marriage and therefore are thinking about how we would combine our finances after the wedding. We know that we would like to have children fairly soon and that I would be a stay at home mom, at least for the first few years. So I was thinking that when we get married, we should live off of just his income from the very first day to get a better idea of how things would work and to resist lifestyle inflation.

I haven’t worked out all the details but wanted to get your opinion on the concept. Basically, his income (approx 100k a year) would pay for our housing, food, car, discretionary spending, utilities, some savings, and the minimum payment on the consumer debt we both bring into the marriage (we’re working on getting rid of it and have stopped accumulating more.)

My income (approx 60k a year) would be divided into long term savings – to build a healthy emergency fund, and extra debt payments to hopefully get rid of all of our debt before we have kids.

My thinking is that I want to know that we’ll be okay when we make the switch to a single income – I don’t want to be dependent on both incomes. What do you think of the plan and do you have any suggestions?
- Mary

That makes complete sense. I think that’s a very good plan.

One thing to consider, though, is taxes. When you go to a single income, you will be paying a lot less in income taxes. Not only will your family’s total income go down a lot (meaning you drop into a much lower tax bracket), you’ll also have a bundle of deductions and credits in the form of your baby. That will help some, especially to offset the expenses of the baby.

I would try very hard to not touch your income unless you find yourself not pregnant in a couple of years and want to use a large chunk of your savings to wipe out debt.

I’m debating on cashing out my IRA early (the value is approximately $10,000) and using the funds to pay off two credit cards. Do you have any advice concerning this idea? I know a 10% penalty will be assessed for the early withdrawal, but I’m tired of carrying the debt.
- Rob

There’s not only that penalty, but there’s also the indirect penalty of losing money in your IRA. That means less money at retirement. Yes, the $10,000 doesn’t seem big now, but in thirty years, that money will be on the order of $100,000.

In this situation, the decision should really rest on how much retirement savings you have in total. I would run a retirement calculator both with and without your IRA savings and see how much the removal of that IRA money would actually affect your retirement picture. If it turns something workable into something impossible, then I wouldn’t do it. If you’re okay either way, then it’s more up to you.

Honestly, though, I would be very reluctant to ever take money out of a Roth IRA to pay off consumer debt.

How can I become more responsible for my own finances?

Currently, I assume my husband manages all finances. I mean everything, buying a car, filing taxes, selecting and paying for services (gas bill, electric bill, and insurance), paying the mortgage and paying credit cards, etc.

I’ve become aware (creditors calling, tax lien placed on my credit union account) of mismanagement (bills not paid on time, creditors calling, credit cards not paid, taxes not filed since 1996) but find myself lacking courage to ask what’s going on, and not having access to significant accounts (SCHWAB investing, on line access of joint bank accounts) to find out for myself.

I get short answers when I ask my husband questions [...] I read your blog and enjoy being financially fit and enjoy living frugally, but I have no control over my husband’s behavior, although I believe his is frugal and financially capable, just lazy I guess.

Other than working on our obvious poor communication and the relationship part myself, do you have advice for me?
- Shelly

I excised some of your story, but I think that you really need to get at least some sort of grip on the financial situation in your household.

I’d suggest reading Financial Infidelity by Dr. Bonnie Eaker Weil, for starters. The book covers more or less the exact type of situation you find yourself in – a situation of not trusting your partner when it comes to finances.

At some point, you need to sit down and talk your way through this with him. That means working on your communication, first and foremost. If he refuses to participate, then there are some deeper marital issues going on beyond just your finances, and you should consider seeking marriage counseling.

My husband and I are in the market for a new or late-model used car and have been doing some research on local dealerships. It seems that nearly all of them have switched to a no-haggle system. Is there any way we can still negotiate to save money on a vehicle or are we really locked in on a price?
- Ellie

“No haggle” pricing is nothing more than price fixing. It simply means that they’re part of a large group of dealers and manufacturers that are agreeing to keep their prices at a certain level.

Unfortunately, there’s not much you can do with such dealerships. My own experience – and the experience of quite a few readers – is that their prices are the bottom line, period. They won’t negotiate and will wave at you as you walk off the lot. Your best bet is to search hard to find dealers who don’t do it this way and negotiate there.

I suspect that this arrangement won’t last for too long, as it’s virtually identical to the “trust” situation in the late 1800s. Competition between dealers and manufacturers is leaving the marketplace and they’re all effectively acting as one company. That’s a monopoly.

Today’s post advised a young couple to do something else with the excess over $25,000 in an emergency fund. You also mentioned that you live off of your hefty emergency fund during those months when income isn’t so steady. May I ask the size of your emergency fund? Or, alternatively, how many months’ living expenses does the number represent and what do your monthly expenses total?
- Melinda

Our emergency fund right now covers living expenses for a little over a year. Of course, our living expenses are going to go up a bit when the new baby arrives.

That’s quite a bit higher than I would suggest for people who have a steady job. The regularity of a paycheck means that you don’t have to have cash reserves for the months when income is low.

I will say this: there were several months in the middle of last year where our income for that month was below our expenses. It was made up for by a handful of stellar months. It’s for that reason that we have such a hefty fund – we can live through a run of poor months and still be okay without having to make panic-based career shifts.

My wife and I bought a house about 3 years ago, right at the peak of the housing market. Since then I’d estimate that our home has lost about $50,000 or about 20% of its value. The house is fantastic and we love our neighborhood, so up until now I hadn’t really cared all that much because we weren’t planning on going anywhere.

That was all before we decided to start a family. We still love the house, and with our first child on the way, we’ll have plenty of room for the three of us. However; we’d like to continue to grow our family over the next few years and the house just wouldn’t work for our family of four.

We’re aggressively saving for retirement currently, but at the same time, we’d like to start putting some money away so that when we’re ready (within 5 years for sure) we can either add on to the house or move to a larger home in the neighborhood. We’re going to start allocating enough money each month so that even if the housing market doesn’t improve we’ll have plenty saved up to move into roomier environs 5 years from now. I guess my question just boils down to where to put the money? Should we be putting it all into CDs or another safe investment like that or paying off more of our mortgage each month? I’m leaning towards a split of 2/3 into cash/liquid investments and 1/3 into paying off the 2nd mortgage for 20% of the house value on the house that’s carrying a 9% interest rate, but I’d be interested to hear what you or your readers have to say.
- Pat

Put it towards whatever earns you the most on interest.

What’s the interest rate on your home loan? Your smaller one seems to be 9% – what’s your bigger one? Do you have any other debts? What’s the best rate you can get on a CD?

The best thing you can do right now is throw your money towards the highest interest rates. If it’s that mortgage, throw all of it towards the mortgage (assuming, of course, that you have some sort of emergency fund).

When you get to the point of buying another home, the equity in your first home will help you to make it happen.

I am looking to shift gears in my career. I currently work at a small conculting engineering company as the resident Quality Assurance person. When I took the job, I had just been let go from a position I hated. This job has been much better, except for the last two years.

I love to edit other people’s work… And am supposed to be doing just that but for the 40+ hours I spend pushing paper for QA. I’ve not edited a single document in nine months.

Basically, I’m looking into an Asst. Editor position at a web based PR firm.

Switching jobs would mean at least two things: one, a significant pay decrease from $45k to $35k and two, there is a possibility of working nights (1p to 10p).
The pay decrease would be tough but not impossible … Working nights even for six months would be an almost impossible adjustment.

I have run the financial numbers on switching careers and my concern right now is that the economy may take another steep dive & I don’t want to switch jobs/career paths only to find myself unemployed or severely under employed.

Other than sticking to my current position which I’ve become disillusioned with and being miserable, I am stuck as to what I could do… I love to edit, but haven’t found a suitable way to include that in my day-to-day activities without switching jobs.

Any suggesstions, things/areas I may have overlooked?
- Danielle

I think you’ve got the general picture right. I also think you should seriously look at changing careers.

One big thing I would do is start building up some cash savings right now before you make the switch. Focus on spending as though you’re earning $35K now and sock the rest away into savings. That way, when you actually do make the switch, you’re not at the mercy of Murphy’s Law right off the bat.

Keep in mind that it’ll likely take some time to find a job in that field. Start shopping for one now and recognize that it won’t happen overnight. Good luck.

My parents purchased a whole life policy for me when I was 1. I’m not sure what to do with it. It has a cash value of about $4000 right now, a death benefit of $50,000 and an accidental death benefit rider of $40,000, with a guaranteed purchase option of $10,000 every three years. The current premium is $200 per year. This past year it earned 6% (before cost of insurance was taken out) and is guaranteed to earn 4%. The current premium is $200.

I currently don’t have a term life insurance policy, but will be purchasing one in the next couple of months. I’m not sure if I should cash this out, keep paying, or stop paying and keeping the insurance until the cash value runs out.
- Adam

You need to evaluate whether this policy is worthwhile as it stands right now. It may or may not be, but there’s not enough information in this letter to know.

First of all, are you engaged in any occupations or hobbies that might violate the accidental death benefit rider? In other words, are you doing anything that causes an elevated risk of accidental death? If so, the company may refuse to pay the rider, making your policy only worth $50,000 if you die. If not, it’s worth $90,000.

Then, get some quotes on term insurance for whatever that amount is. Be honest when getting the quotes. See how much your premium would be for a term policy matching the value of your whole life policy.

Once you have that quote, see how much more you’re paying for the whole life policy compared to the term. Is that difference worth the investment benefit you’re getting at this point? Or would it be better to cash out that investment and put it elsewhere?

I saw a horrible message about you on [link to messageboard removed]. Somebody certainly has an axe to grind! Why don’t you go there and defend yourself?
- Kelly

Honestly, I don’t really care.

There are a lot of people out there who use the anonymity of internet messageboards to blow off steam. I run a website that has hundreds of thousands of readers. It’s not surprising at all to me that some of those people blow off steam in my direction. If I spent my time worrying about it, I’d worry about nothing else.

Yes, sometimes in doing that, I overlook actual legitimate issues and complaints. It’s a tradeoff, but it’s a tradeoff that needs to happen to maintain some degree of sanity and personal happiness.

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.

Add/view comments on this post.

------------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.