Bad credit, confusing taxes: 10 personal finance problems solved
How do you improve a bad credit score? What do you do if you and your spouse can't agree on budgeting? Hamm answers these questions and more in this week's reader mailbag.
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. Assessing property
2. Scratched DVD repair
3. Worried about upcoming baby costs
4. Disagreeing about what’s “essential”
5. Gardening baby steps
6. Baby expense disagreement
7. Fixing a credit score
8. Taxes and investments
9. Contractor versus employee
10. Toll question
A new week is a new opportunity.
You have a full workweek ahead of you. What can you achieve this week to set yourself apart?
You have five days with which to plan something special for this weekend. What can you plan that will make something memorable?
What can you do to make this week not just an ordinary week? What can you do to make it special?
Q1: Assessing property
We bought our home in 2010 for around $189,000 in an area with reasonable property taxes and felt like we were getting an excellent deal, far below market price. The year after we moved in my husband contacted an assessor to revalue our property in hopes of lowering our property taxes. I was somewhat hesitant in case the opposite would happen, however we did manage to scrape off several hundred dollars in taxes for the year. This year the town we live in did their own revaluation of our property/land and the net change in assessment went down $6200. Essentially they are now valuing our property/land at $190,700 which is not too far from the price we paid for it 3 years ago. Depending on the budget process to occur later this year we are excited to potentially have lower property taxes yet again. Despite this, is there a point at which we should be concerned our assessment is nearing or may eventually be less than our original purchase price? The appraisers are available to meet individually with home owners and I’m just wondering if there is a benefit or risk to these open conferences. Is there a reason we would want to present evidence to increase the property value? (We plan on staying in this home for at least the next 5 years).
Don’t worry about this too much. Assessed values and actual property values rarely match each other. In some areas, the assessed value can be more than 20% lower than the market value and in others it can be close to the market vaue or higher. It depends on the assessors and many other factors.
The reason appraisers would meet with people is so they can hear arguments about why their assessed property value should be lower, not higher.
I might be slightly concerned if I were trying to sell the property today. If you plan on staying for a while, I wouldn’t sweat this at all.
Q2: Scratched DVD repair
My wife and I went through our DVD and Bluray collection intending to sell a lot of them off. We’re hoping to get a dollar or two on average for all of them. Anyway, I was verifying that they all worked and about ten of them had scratches that caused them to not work. Any ideas for a cheap way to fix them? If it’s not cheap, it’s not worth it for us because we probably won’t get more than $10 out of the scratched ones total.
If I were in your shoes, I’d buy some toothpaste (not gel, paste), put a little dab on the disc, then rub it around with a soft cloth all over the disc. After that, I’d gently clean off the excess paste and see if that helps. Unless the scratches are severe, this usually does the trick.
Some people will take this an extra step and use a tiny bit of car wax on the disc, rubbing it in using much the same technique as a follow-up to the toothpase. I’ve never found this necessary.
Remember, though, your mileage may vary. I’d experiment on a single disc (perhaps the least valuable one) first to make sure it works to your satisfaction.
Q3: Worried about upcoming baby costs
So my husband and I are expecting out first child (a son) in November. This is something that we had talked about for a while. We currently have around $6,000 in our savings and (thanks to generous wedding gifts from family) put an additional $1,500 in the account last month. We have been looking for other ways to save and I am stuck. And panicking.
I’m not sure where to cut because it feels like nothing CAN be cut. I also have a student loan payment of $898 per month with Sallie Mae and $78 per month with AES. The Sallie Mae loans are private and federal. I’ve looked into consolidating them with Wells Fargo. The issue is I need a co-signer. My husband’s credit is not good (his mother stole his SS# when he was young and registered a bunch of cars in his name and never paid taxes on them) so I’m not sure he would be a good cosigner. My parents have said they will not cosign for me. I am on time with all of my payments each month and have a good working history.
I guess I’m just feeling overwhelmed because I want to try and save as much as possible before the baby comes. And after he comes I’d like to be able to offered his needs and pay for daycare without eating Ramon noddles every night.
An $898 monthly student loan payment seems incredibly high to me. Even at a 7% interest rate, you’re talking about well over $100,000 in student expenses, which would make me assume that you must have a graduate degree of some kind.
In your situation, I’d try to find a cosigner as soon as possible, as I’ve got to believe that the interest rates on this loan are excessive. The first thing I’d do is check my husband’s credit history at annualcreditreport.com and see what’s actually on there. If the events involving your husband are far in the past, his credit may be recovered at this point.
I would make other suggestions, but I’m unclear as to what your career situations are like, whether you plan to stay at home with the child, whether you’re near grandparents, and so on. There are many, many factors that can make a big difference when it comes to affording a child.
Q4: Disagreeing about what’s “essential”
My husband and I agree that we should cut back to the essentials until we get our debts paid off. We disagree on what’s “essential.” I don’t view cable as essential but he does. Our “compromise” feels like I’m the only one giving up things and our discussions are getting pretty heated. Any advice?
Without suggesting anything specific, ask him to make a list of the things he considers “essential.” Make your own list, too. Then, together, walk through both lists. I would be very surprised if you didn’t list at least a few things that he didn’t include.
The conversation should then focus around compromise. Which “essentials” are you willing to give up? What about him? You should be willing to each give up a few things and hold on to a few others.
When you sit down and one person is naming off expenses and the other person is describing them as either “essential” or not, you’re begging for arguments.
Q5: Gardening baby steps
I want to plant a garden to be able to save on our grocery budget. I think a garden would also be a great teaching tool for my children. How do I begin? When do I begin? Where do I start? The red Georgia clay could prove to be a big problem in starting a garden but I still see a benefit to growing our own veggies and maybe strawberries/raspberries. Any advice on this would be great. (remember, I.KNOW.NOTHING!)
I would honestly start with a book like Gardening for Dummies, which you can easily check out from the library.
The best time to start thinking about gardening is during the fall, where you can go outside, figure out where you want a garden, and do a bit of basic preparation. Planting usually happens in the spring, with harvest in the fall. Wintertime usually involves buying seeds and, in the late winter, starting some plants.
It’s not complicated, but it does take time. I tend to find garden work rather soothing.
Q6: Baby expense disagreement
My husband and I agree that we should have a baby, but we disagree as to when. He thinks we should have it now so that we’re younger during the child’s milestones. I don’t think we have enough money yet and that we should wait for a while. Combined we make about $80K and our only debt is our student loans which add up to about $70K. We might buy a house soon, though. I am 27 he is 28. Should we wait?
I think you need to sit down together and establish what milestones you want to cross before you have a child. This is a discussion you need to have together.
From what you describe, I don’t think you’re in a bad financial position to have a child unless you intend to be a stay-at-home parent. If that’s the case, I’d try getting rid of that debt first and get some additional savings in the bank.
Be aware that one spouse can interpret another spouse’s desire to wait as a hidden desire to not have children at all, and that can be upsetting to someone who wants to have children. You simply need to talk through this and you also need to think about what your own true desires are.
Q7: Fixing a credit score
After a bankruptcy and foreclosure, do you have suggestions for how to fix a credit score? Other than paying bills on time and using a cash-based system of course.
Those are really the best things you can be doing right now. There aren’t any magic credit fixes out there.
If you can get a credit card with a small credit limit, it’s a good idea to start using that for some purchases as long as you pay off the entire balance each month. Just use it for gas, for example.
The best thing you can do is just let time heal the wound and keep your nose clean for a while.
Q8: Taxes and investments
I have a question about investments and taxes. If I decide to buy some stocks and I sell them, how do I figure out how much tax to pay? Can I really end up paying more taxes than I make on the investments?
If you buy an investment today and then sell it in a year, if it goes up in value, you’re going to generate a capital gain. The difference between the purchase value and the sale value is the capital gain. So, if you buy something for $5,000 and then sell it for $6,000, that’s a capital gain of $1,000.
If you held the item for more than a year, it’s considered a long term capital gains and, for most people, it’s taxed federally at a 15% rate. Short term capital gains are taxed at your normal income rate. Note that the exact rates for capital gains changes fairly regularly depending on the political situation in Washington.
So, if you held that item for eighteen months and sold it for a $1,000 gain, you’d owe $150 in federal taxes on that gain. The exact purchase price and sales price really do not matter – what matters is how much you gained.
Q9: Contractor versus employee
I’ve worked at the same company as a full time contractor for about three years. We just found out that starting in 2014 the company is going to be making the switch from everyone working as a contractor to becoming employees. Some people who work primarily off-site will get to stay contractors, but everyone else will be offered employee status. I have been told that since I’m currently in a management position that I would be considered “exempt” rather than non-exempt. My question is if you have any advice for me on how best to equip myself for this change. I currently pay quarterly taxes, have my own private health insurance policy, and typically bill for over 40 hours per week due to my workload. Becoming an employee will give me benefits (PTO, health insurance, etc), but it sounds like my take home pay will probably be less. In general, I’m excited for this change, but I want to make sure I can negotiate a salary that will be commensurate with the amount of work that I do. Any advice would be appreciated!
I would figure out what you make in a year, subtract away the cost you’re currently paying for the benefits that you’ll get as an employee, and use that as a baseline for negotiations. I would consider a small salary drop acceptable as most full-time employees are more stable than contractors.
How you negotiate depends entirely on the process of determining your salary. It also somewhat hinges on the quality of your performance over the last three years. The higher your quality, the more likely you are to be able to negotiate with ease.
You should also consider what full-timers in your field are earning. You should be somewhere in the ballpark of what you should expect for someone with your level of experience in that field in your area. The key part is in your area, as a software developer in Silicon Valley will likely make more than one in Des Moines, but the one in Des Moines is enjoying drastically lower costs of living.
Q10: Toll question
When I drive to work, I can either drive about 12 miles and pay $2 in toll or I can drive about 20 miles toll free. The routes are about the same speed, so the longer route takes about 10 minutes longer. Which way is cheaper over the long haul?
It depends on a lot of factors. How new is your car? A newer car will depreciate faster with each mile than an older car, so a newer car leans toward the shorter route. How fuel efficient is your car? The more fuel efficient it is, the better the longer route becomes. How much do you value your time? The higher the value you put on your time, the better the shorter route becomes.
If I were driving an old Honda Civic, for example, and I was listening to a book on tape to learn something that was relevant to my career, I’d drive the longer route every time.
On the other hand, if I was driving a new pickup and I was also trying to jumpstart a side business at home, I’d drive the shorter route every time.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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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