Graduation gifts: Consider the investment route

Graduation gifts like savings bonds and mutual funds can be good alternatives to cash. Graduation gifts are question one in this week's mailbag.

By Trent Hamm,?Guest blogger / May 29, 2012

Balloons fall on the 2012 graduates of the University of Alaska Fairbanks to end their commencement in this May 2012 file photo, at the Carlson Center. According to Hamm, paying off a chink of student loan desk or investing in mutual funds are more lasting options for graduation gifts. (AP Photo/The Daily News-Miner, Sam Harrel)

Sam Harrell/The Daily News Miner/AP/File

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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. Financially sensible graduation gift
?2. Using lots of oregano?
?3. Summer vacation reading
?4. Basic expenses more than income
?5. Retire now or later?
?6. Unwanted friends for children
?7. Should we replace this chair?
?8. Son in financial trouble
?9. Fast supper fallbacks?
?10. Home dreams slipping away

Skip to next paragraph Trent Hamm

The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds ? we just want simple ways to manage our finances and save a little money.

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It was a hot afternoon. We had spent several hours outside and all of us were slightly sunburnt and worn out from all the activity.

What did we do? We piled together in the living room and watched home movies. Family vacations, Christmases, soccer games, graduation ceremonies. We laughed and smiled and remembered good times.

Home movies are made for days like this.

Q1: Financially sensible graduation gift
?My son will be graduating college soon and I am stumped at what to get him as a gift. I was hoping to get him a CD or mutual funds for him after he graduated from grad school. I have come to dead ends, since it is my understanding that he needs an account for either of these. I was also told that the purchase of stocks, but right now that is too risky. Savings bonds are OK, but then I heard of Treasury Inflation-Protected Securities (TIPS). What will be the best vehicle other than cash for a graduation gift.
?- Andrew

For starters, does he have any debt? If your son is getting out of college with student debts, the best financial gift you could give him is a big payment on those debts.

If he?s debt free and he?s financially sensible, I would simply have him open an account with the investment house of his choice and put his gift in there. That way, he can control the financial choices himself.

If he?s not financially sensible, then you may just want to give him something small now and sit on the money yourself for a while. If you don?t, it?s likely to go to waste. I speak from experience here.

Q2: Using lots of oregano?
?What are you going to do with your [mass quantities of] oregano? Pesto?
?- Angelique

We use oregano in lots of things. We make our own pasta sauce, for example, and both fresh and recently dried oregano is great in that. Pesto is certainly another option.

With our pasta sauce, we will often make large quantities of it, use some immediately, freeze some more, and give away the rest to friends. Thus, we end up using a lot of oregano this way.

If we end up with a lot of excess oregano, we just dry it, chop it up, and give it to friends. Freshly dried oregano is still far better than anything you?ll find dried in the store.

Q3: Summer vacation reading
?What books are you taking on your summer vacation this year? I?m looking for something more thought provoking than the usual beach read and I know you dig into some deep stuff sometimes.
?- Martin

My big read for this summer is going to be Robert Caro?s book The Passage of Power, covering Lyndon Johnson?s years as vice president and his first year or so as president. Fascinating for politics and history junkies, but perhaps pretty dull for everyone else.

I?m also going to read Billy Lynn?s Long Halftime Walk by Ben Fountain, which promises a powerful story and some insights into the reality of war and how the government promotes it.

For more light reading, I?m working on Steven Erikson?s Malazan Book of the Fallen fantasy series.

Q4: Basic expenses more than income
?I know you get thousands of emails like mine everyday and you are very busy but our situation is a little desperate. The basic rule of debt repayment or budgeting is to ?SPEND LESS THAN YOU EARN?, but what do you do if your BASIC costs are exceeding your income?
?- Denae

If you have reached a point where your basic expenses exceed your income, you have to start looking at some radical changes. Sell your home. Have your lowest wage-earner quit work and spend time with the children to eliminate the child care costs. Get a second job. Move to another part of the country.

You have to do something to cause your income to exceed your expenses, and if the little things aren?t working, you have to make a radical move.

Many people don?t even consider these kinds of shifts when considering how to make things work. Instead, they find themselves struggling and drowning for many years of their financial lives.

Look at big changes, not little ones.

Q5: Retire now or later?
?I have worked for a local government for 31 years and have been eligible to retire for 5 years. I?m hanging on to increase my pension and have reached the point where I will make substantially more by retiring than by continuing to work and draw my salary. Every year I continue to work, I will earn substantially more in my pension. The dilemma is when is it enough? My husband wants me to continue to work for at least another 3 years which will increase my annual income by around $18,000. Another year would add even more. This is all very good of course because once the pension is set there are no cost of living increases, so the more I get the better the hedge against inflation. I will also get social security someday (I hope), and I have an additional deferred compensation retirement fund through my employer that I contribute to with pre-tax dollars as another hedge against inflation. The retirement pension deductions from my paycheck are also pre-tax so I will have to pay income taxes on my pension and the deferred comp income. My husband also works for the same government entity but has been here far fewer years so his pension will be very small and will never even match his current salary, so we will be mostly dependent on my pension. He plans to continue to work until he is 65.

Our retirement system is said to be very solid and we are told that we don?t have to worry about it getting into trouble because by law it has to be fully funded by the government entities that participate in it. I?m happy to say the local government I work for has not gotten into any of the financial difficulties that have plagued others around the country. Employee participation in the plan is mandatory and a percentage of our salary is deducted each month. We get around 7% interest on the total deposited at the end of each fiscal year. At retirement my employer kicks in 225% of the total amount in my account. I feel very blessed and lucky to have a good retirement fund in place and I do want to take advantage of it by retiring early. The main reason I have stayed at this job for 31 years is because of the retirement plan. I can?t say I love my job; some days I feel very burned out. I?m torn by my desire to retire next year while I am still young enough and healthy enough to really enjoy it ? I am 53 years old and my husband is 58. On the other hand, my husband wants me to continue to work for a few more years in order to get a very hefty increase in my pension.

Also, our house is paid for, ours cars are paid for and we have zero credit card debt. Do you have any advice on how we can solve this dilemma? Would I be foolish not to work for another 3 to 4 years?
?- Willa

What would you do for the seven years that you?re retired and your husband isn?t? If you don?t have a really strong answer to that question, I would plan on retiring on the same day that my husband retired.

I think that retirement shouldn?t happen unless you have a strong plan for what you will do once you don?t have a job to fill your days. Most of the people I?ve watched in retirement have struggled mightily with what to do with themselves after retiring, even when they thought having all that time to themselves would be liberating.

If you don?t know exactly what you would do with that time, don?t retire. Retire later, when you have someone to spend that time with and a lot more financial security to boot.

Q6: Unwanted friends for children
?My twin sons have started spending a lot of time with a kid that I simply don?t trust in our home or around our twins. The new friend has already lied to myself and my wife two or three times and we think he might have stolen some money left out on a table. I don?t want our kids to start copying this kind of behavior. What should I do?
?- Lucas

I?d approach this on two fronts.

First, I?d minimize the time your children can spend with this kid. Don?t invite him over and don?t let your kids go over to his house. You can?t completely stop them from interacting, but you can take steps to minimize the time they interact.

Second, I?d make sure to reinforce the values you care about. Talk about how stealing and lying are wrong and how they can damage your life. Make sure it?s clear what kind of children they are and what you expect them to behave like.

Having your children grow up and begin to make moral choices on their own is never easy. Just make it clear what your values are.

Q7: Should we replace this chair?
?My husband and I are bickering a bit back and forth about the dining room chairs. One of the decorative spindles falls off regularly. We put it back and it gets knocked off all the time. The arm of the chair constantly gets broken. My husband bangs it in with the hammer, braced it, etc. The kids often climb on the chair and knock it out. Whereupon he puts it back. I have been making noises that we should replace the chair (we have 4 chairs, and his is the only one that is broken) or get 4 new chairs altogether (we regularly have 14+ people over for meals, but we use folding chairs). It is aesthetically abrasive to me. My husband says it?s perfectly fine (he also objects to my throwing out his chair, replacing his seat with the other chair with arms and having only 3 chairs plus the folding chairs). He said, appealing to my frugality streak, that it works perfectly well (these chairs are hand-me-downs from my parents? friends and are at least 25 years old). He said, ?What would your friend at the Simple Dollar say??

I was wondering if you have disagreements as to how much more life is left to an object, and how you navigate them. Usually, by the time my aesthetic sensibilities are offended (I?m pretty relaxed), my husband agrees. We tend to agree when our couches are destroyed and when we are ready for a new one. The seat and back of the chair are still in excellent condition, though, hence our debate.
?- Claire

I don?t worry about aesthetics very much. I do worry about functionality, though. If the chair is consistently unusable, then I would replace it. The entire point of a chair is to provide a reliable place to sit.

That being said, this doesn?t sound like a situation where you would toss the chair out. I can?t see the chair, of course, but it doesn?t seem like anything that can?t be fixed.

Since I can?t really see the chair, I would ask if you?ve done things like apply wood glue to the pieces that aren?t staying in place and using a clamp to make sure that the wood glue has plenty of time to dry and form a tight seal. We had a chair with a loose leg recently and this worked wonderfully.

Q8: Son in financial trouble
?They have only been married just over one year and are over $100,000. in debt, including my son?s student loan debt of $32,000.00 but not including their mortgage. My son told me they have enlisted a credit counsellor who (for a fee of course) claims they will be debt free in 5 years. He also claims they do not qualify for bankruptcy. (By the way, we live in Canada). Frankly I was appalled. But after the first shock, was not really shocked. Before marriage, they both maxed out their credit cards and lines of credit. I don?t have proof of this, but I?m sure this is the case. My son?s wife (then fiancee) was able to arrange a mortgage on a small house which, at the time, I applauded due to her reasoning. My son?s credit was hopeless with the student loan so the mortgage was in her name only and she claimed the payments were such that she could afford it alone. Now, even with my son working at $13. an hour, they still cannot meet their obligations. I?m afraid that if they go this route with a credit counsellor, they will not really learn the lesson of spend less than you make and they will be in the same boat 10 years from now. I really think they should plan a debt repayment on their own and learn to live within their means, but I?m only a parent and feel I should not butt in. But it?s tough to zip the lip! What, if anything, can I do? I?ve been following your 365 tips especially the ones lately on debt and I?m tempted to forward them on but I don?t want to alienate them.
?- Leon

I don?t think there is too much you can do. In the end, it is their problem, not yours. I know the desire of a parent to want to help their child, but sometimes the child has to swim on their own.

That being said, if you want to send along a little bit of advice, that?s probably a worthwhile move (whether it?s a post from The Simple Dollar or something else). Just don?t make a habit of it. Find the best one-off piece about debt management you can and send that to them, then let it drop.

The most important thing you can do is make sure they know that they can come to you when they need to and that you?ll help them in what ways you can.

Q9: Fast supper fallbacks?
?What do you prepare for supper on evenings where you have very little time for prep? We?re trying to get out of a cycle of eating fast food which is expensive and unhealthy.
?- Joan

Our fallback meal is spaghetti with one of our canned sauces. We fill a pot with water as soon as we come in the door and we?ve usually got a pasta dinner on the table in fifteen to twenty minutes.

If we know an evening is going to be tight in advance, we usually prepare a crock pot meal of some kind. That means it?s done when we walk in the door so we can immediately serve dinner.

Another option is to prepare a ?picnic? style supper that evening and store it in the refrigerator. We?ve stored some of the contents of a picnic in the fridge and left the rest in a basket just outside of the refrigerator before. This means all we have to do is go home, grab the cold stuff, add it to the basket, and go.

Q10: Home dreams slipping away
?I have a family of three. I am 32, I have no education, and I have stayed home with our daughter for her entire 7yrs. Anything kid related, I take care of it. My husband is a carpenter. A few years ago, we scraped up the money for him to get licensed. It was logical that he would be able to earn more money as a self employed businessman.

Financially, we had almost nothing. When our daughter was born, the three of us lived on 30K a year. When we married our credit scores were a negative, and an absolute zero. I handle our house money, and in a few years, we went from no money to $20k in the bank, and credit scores of 700?s. We also bought two new vehicles, one brand new (now pd for) and one gently used in 2009. That one is now 50% paid for. There are some other minor bits of debt, but nothing too severe.

Last year, we relocated our family. Our daughter was getting a horrible education, and we couldn?t afford a house. We rented a small apartment in the new town.

When we got here my husband got a job quickly. He was making 1400 weekly. Remember, we moved for two reasons- one was for a better education for our daughter, the other was to buy a house. He worked for this man until the end of 2011. I hurried out and got us pre-approved for a home loan. Rates are great, and we have the money to put something down. Around January, my husband had an opportunity to apply at a really great company. He went through the application process and is currently one of few qualified for the job. It is now the end of April. The company he applied to won?t return our calls. He is taking odd jobs. We are now dipping into our savings every month, and are down to 13K with no options in site. We are planning to move to another area that has more affordable houses in a couple months when our lease expires.

I attended a trade school to get a certificate, and I must complete an internship to recieve it. They will only give me short shifts, and no routine schedule to rely on. I cant really complain because I will come away from this with some education for myself. I still handle the kid things, and the house things. I also draw a small bit of unemployment. I pay for all the groceries and my gas with that money.

I am watching our money slip through my fingers. We were THIS CLOSE to buying a house, and now the dream is slipping farther away. We can?t meet our bills, and with this route of work, we can bet on paying self employment tax. Did I mention I hate apatment living? I am very unhappy here. I thought it would be temporary. I have tried to not be a nag. I have asked my husband if he needs help getting his resume together. I have gently asked if he called the company he applied with to see whats what. If you were me, what would you do here? I don?t want my husband to feel like a failure; I dont want him to think my concerns are ultimatum-y. I can?t even apply for jobs until I get my certificate in my hand so I dont waste the money spent already.
?- Lois

Life has its ups and downs. Sometimes success seems like it?s right around the corner and other times it seems far away.

The one thing you can?t do is give up. He needs to keep looking for a good job. You need to keep plugging away at your certification and start applying for jobs before you even have the certification in hand. Keep looking at different options: a different place to live, a different location, and perhaps even living with relatives for a while.

Don?t worry that your goal seems further away now than it did a year ago. Focus instead on making sure you fill every day with steps that move you toward your goal, even if life sometimes pulls you away from it more than you?d like.

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.

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