Reader Mailbag: A Bit of Auden
“You need not see what someone is doing
to know if it is his vocation,
you have only to watch his eyes:
a cook mixing a sauce, a surgeon
making a primary incision,
a clerk completing a bill of lading,
wear the same rapt expression,
forgetting themselves in a function.
How beautiful it is,
that eye-on-the-object look.”
- W.H. Auden, Horae Canonicae
I’m a 30 yr old professional and have saved up about $40k from living within my means sitting in my savings account (I know, I could put it to better use). I contribute about 10-15% in 401k off and on (due to job jumps and 6-12 months working period for eligibility) and have approximately $20k in it. I recently read “rich dad poor dad” and realized it would be a dream come true to no longer have to “work for money”. The book talked about buying “assets”, as in things that would generate more money for me, and use the money generated to buy more “assets”. But I don’t know what to buy. I’d like to keep $10k as emergency money and put the rest to generate money for me. I know I can always buy index funds, but are there any ideas on what I can buy that’ll immediately start making money for me?
I live in Northern Virginia (DC suburbs), so rental property is out – real estate is expensive and rent is a lot cheaper than mortgage.
- Paul
First of all, be aware that Rich Dad, Poor Dad paints an insanely optimistic picture of “making your money work for you.” Remember that it is supposed to be a parable – in his own words, Kiyosaki compared the book to Harry Potter (in the Feb. 2003 issue of SmartMoney).
The idea that you should really take home from the book is that there is a lot of merit in purchasing investments that earn you money without continued work input from you. Fully managed rentals are one type of this. Another type is a stock that has paid dividends over a very long history (and thus will likely to continue paying dividends). Treasury notes are another very stable example of this – they don’t pay as well as the others, but they’re rock solid.
The book essentially proposes that you look for bargains on such assets and keep accumulating them until they produce enough income for you to live on.
If you have about $10K to start with, one place to start might be stocks that pay a strong dividend, as you don’t have enough to really buy rental properties yet and you don’t need the rock-solid stability of treasuries, either.
It’s important to remember that such “income-paying investments” aren’t necessarily the best investments for the long-term growth of your money. They’re simply nice in that they provide a steady income for the owner.
I am very upset. Our Chevron gas card that we’ve had since 1987 is now handled by GM Money Bank. Our joint account now lists my husband as the account holder with me as an authorized user. I didn’t notice this until they start calling to verify purchases as part of their fraud prevention program. If you don’t respond, they block the card and won’t talk to me about anything. I handle the billing and payments on all our accounts, and am incensed that they won’t talk to me. They wouldn’t even let me report fraudulent purchases posted to the account. Are there no longer joint accounts available? What happens if he is incapacitated and unable to speak?
- Cindy
Many credit cards have moved to a single cardholder with additional authorized users, mostly in an effort to standardize accounts. It’s not really anything to worry about.
If you are the main cardholder’s spouse, you should have power of attorney over his affairs in the event that he is incapacitated. This will give you the right to make choices and administrative decisions about his credit card.
I really wouldn’t worry about it too much. For now, it doesn’t change anything about how you two use the cards. If he did wind up being incapable of managing the card, you would be able to do it for him.
When my wife and I got married, we took ‘control’ of a 40K full-service/managed investment account that had been set up for her in the past by her parents. I have been considering turning that into a self-directed account, as the managers of that account just about matched the stock market, and i prefer to just invest in a long term, low fee indexing strategy.
However, we are also underwater on our mortgage by about 15-25K. We have no trouble paying our mortgage and in fact put a couple hundred extra towards principle every month. We are securely employed, although of course you never know what will happen, and ive been considering putting a chunk or most of the 40K towards the principle of our mortgage, to get us above-water and guarantee the roughly 6% return on that money. It also might give us a better shot at refinancing to today’s really low rates. Also might put 5K towards auto loan at 3.9%, which will cut that loan in half.
We also have 15K in liquid savings and another 45K in IRAs and CDs. Any advice?
- Brian
That seems good on paper, but there are very painful tax complications to doing that.
If you take $20,000 out of a 401(k) before retirement, not only will you have to pay income tax on whatever you pull out, you’ll also have to pay a 10% early withdrawal fee. This will quickly eliminate about 30% of your savings (depending on your exact tax bracket, of course).
You’re better off leaving the money there. The 10% penalty alone will eat up any potential “extra” return you might earn versus leaving it in the 401(k).
My boyfriend and I live together and he makes a lot more than me because I’m in graduate school. We split bills 50/50 for the house we rent right now, but we’re moving into a bigger house soon and he will pay more of the rent than me. He also has money saved for when we one day decide to get married and buy a house. Since we’re not married or even engaged at this point, I feel a bit guilty that he will be paying more of the rent than me. How do unmarried couples (or married couples, for that matter) reconcile differences in income? It really bothers me when wives expect too much from their husbands financially and I never want to turn into that.
- Kate
I think it’s completely reasonable to proportion bills in proportion to the incomes of the household members. Of course, that proportion would have to change every time there is a change in income for either household member or in household ...
