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. Struggling with moving decision
2. Prioritizing family options
3. Planning Disney vacation next summer
4. Choosing a 529 plan
5. Stuff to avoid secondhand
6. Spotify or Youtube for music?
7. Pet ownership decisions
8. Risk of cheap holiday lights?
9. When promised help doesn’t arrive
10. Dinner party without seeming cheap
11. Amazon and ethics
12. Holiday traditions?
Last week, we had an interesting home issue that I thought was worth sharing, but probably not worth a full article.
At several different times, I caught a whiff of a burnt smell, usually in the upstairs of our home. I’d sniff around and never quite be able to figure out where it was coming from.
A few nights ago, I woke up in the middle of the night and the smell was really strong. It was coming from the vents, mostly on the top floor. I ran downstairs and there was a really loud noise coming from the air handling system, so I immediately turned the furnace off, covered up the kids with an extra blanket, and waited until the smell dissipated. A repairman came by the very next day.
I am so lucky that I woke up when I did or else I might be writing about a house fire. (My gut suspects that if there was a fire of any kind, it would have been contained where it was, but it’s not something I really want to test.)
On with the questions.
I reside in Brooklyn NY, possibly the most expensive city in the US to live in life-wise. My partner has his business in the city and will not be able to move. I freelance and work mostly in the city. My commute usually takes about an hour during rush hour since I have a huge kit to carry and I cannot take the subway so I HAVE to take a cab to work. We are located in the most ever-changing hip neighborhood two stops in from the city.
Things have changed a lot since 11 years ago. I now have two young kids. My condo has appreciated double the purchase price. My partner really wants me to get rid of this 910-square-foot two-bedroom two-bath condo with a backyard and possibly buy a townhouse with one rental unit deeper into Brooklyn, farther away from the city. He is frustrated with the small condo and he wants more space. I understand it’s small, but it’s pretty nice for a NY apartment. I bought the condo at $465K and we definitely can get a million; we will be listing at $1.2M hoping for about $1.1M. I have about $230K left on the mortgage. I put him on as half-owner so we don’t have to pay the sales tax on the $500K profit ($250K each). Since we are both freelancers we usually write off our tax to the max but in the year 2018, my partner didn’t write any off and we had to pay $50K in taxes to be preapproved for $800K mortgage.
There are kid-friendly activities in my neighborhood, classes, sing-alongs, play yards with a diverse group of gentrifiers. Schools are better here but it’s really a crapshoot because we have to apply to schools in different zones anyways because the one we are in isn’t amazing. There are a dual language Japanese-English school 10 minutes away from me that I am hoping to get into since I am Japanese in different zones. If we do live deeper into Brooklyn I still will apply to that school, we will just be far away from it. I personally am OK with the space right now because the kids are so young and there are so many kid-friendly activities in my neighborhood.
The thing is NY real estate is insane and if we did wait couple more years, it’s just going to be more expensive if we ever decide we want to get a bigger space. By then the townhouses we are looking at will be well over $2M while currently, they’re about $1.5M. Due to our jobs, we don’t really see ourselves moving to the suburbs and even though my commute already takes about an hour (on a subway it will be like 30 mins) and his is a 20-minute drive, it just does not make sense for us to move farther away into the suburbs. The school systems are worse deeper in Brooklyn and aren’t gentrified at all. The only hope is the dual language school we have priority to get into because my kids are half Japanese.
My question to you is what do you think we should do? So many people think I am crazy for getting rid of my condo in such an amazing neighborhood to move farther away in a non-gentrified area. It will one day become gentrified but will be another 10 years at least, it’s slowly already happening for sure.
From what I can tell from your story, the sole reason you’re moving away from your current location is that your partner wants more living space, with a smaller secondary concern of some tax complications if you stay. Aside from that, you seem to like everything about your current location better than the new one. You don’t like the schools there and the commute appears to be longer, too. You seem like your current community quite a bit. For you personally, it seems like you want to stay.
I would suggest that you sit down with your partner and each make a pros and cons list about where you’re living versus where you’re moving. What are things you like better about where you live now versus where you’re considering moving? What are things you like better here?
Make those lists individually and then share them with each other. I suspect, for you, almost all of the positives will revolve around staying put. There may be some negatives for you, but this message seems to be almost entirely positive. With him, the space is clearly an issue, but perhaps there are other ones, and maybe he doesn’t see as many positives in the area as you do.
It should be pretty clear after you share those positives and negatives, where you guys should be going forward. If most of the positives are on one side of the ledger, that’s what you should go for.
Remember, this isn’t a game to “win.” You need to decide together which option is the best for both of you. Be honest in what you like about where you live and what you don’t like, and what you like about where you’re potentially moving and what you don’t like. Listen to what your partner is saying, too, and take it seriously.
Given my understanding of real estate in that area, you’re likely to see significant growth in value at either location. If the new area gentrifies, then your new property will definitely skyrocket in value, too. It is extremely difficult to predict which property will see the most value increase, but I suspect both will see a significant increase over the next decade. I would not make predictions of property values the defining factor in this decision; rather, focus on what will make a better life for you, your partner and your two children.
How do you prioritize what the best choices are for spending money on your family? Is it more important to live in a nice neighborhood or to save for college? Should we travel when they’re young or save more for a good retirement? We should be doing all of these things but the dollars only stretch so far.
If it becomes a choice between options like this, Sarah and I lean toward good public schooling while living in a relatively good area, love, good attention, guidance at home and saving toward our own retirement above the other options.
Our belief is that a stable childhood with love and attention in an area with good public schooling and relative safety is the most cost-effective thing we can provide for our children for their future. We also strongly value retirement savings for our own future, as this ensures that we are very unlikely to become a burden to them in our old age. They may worry about us, but those worries shouldn’t be financial ones.
Obviously, it would be nice to do all of the things that you mention in your question, but when doing all of those things is beyond your financial means, I would prioritize a good home life, good public schooling, a good neighborhood and your own retirement savings — with a good home life above all else.
Husband, 7-year-old and I are going to Disney World next summer. We have been saving for a few months and are now trip planning. Read lots of articles on how to keep costs low but thought you might have some ideas.
Our family went to Disney World a few years ago. We learned several things about keeping costs low.
First, get lodging outside of the Disney parks. The prices are much better and many offer a shuttle into the parks. Many of them offer free breakfast, too, which can save a lot.
Eat as much as you can outside the parks, because the food prices are really high inside the parks. The best approach is to bring in a lot of food yourself in a backpack. For beverages, bring in empty water bottles or sealed containers of other things.
Decide on your souvenir budget before you leave and stick to it. A good idea is to bring along your full souvenir budget in cash so you have to make decisions regarding that budget.
Unless you’re only going to be there one or two days and are trying to jam as much as possible into those days, don’t bother with paying extra for Park Hopper. You can easily spend a full day at a single park. Depending on your package, it may be even cheaper to pick your park for each day in advance.
There are a few ticket discounts out there, but they aren’t big ones. We scoured and scoured the internet and were only able to save maybe 10% on our actual tickets. It seems like Disney keeps the ticket prices pretty tight. The tickets themselves were the one area we found to be very difficult to save a lot of money.
Good luck! We really enjoyed our trip!
Every state seems to offer its own 529 plan and people can enroll in whichever one they want. How do you choose among so many?
There are a few factors that should help you narrow things down.
First of all, you’ll want a college savings plan, not a prepaid tuition plan. A prepaid tuition plan locks that person into attending a particular school or group of schools, of which, many end up not being a great choice. A college savings plan contains money that can be applied to any school.
Second, if you’re in a state that has a state income tax, find out what 529 plans have deductible contributions in your state. Some states allow you to deduct 529 plan contributions from any state’s plans, while other states require you to use the plan from that state.
Finally, do some side-by-side comparisons. I trust Morningstar’s recommendations for the top 529 college savings plans as a starting point. I wouldn’t say that you must choose one of their “gold” plans, but if you can choose a “gold” one and still get an income tax deduction for your state, that’s the best choice.
You tell everyone to buy everything secondhand! Is there anything you shouldn’t buy secondhand?
I would not buy electronics secondhand unless there was some kind of guarantee or warranty associated with the electronics. For example, I might buy a certified refurbished computer or game console from a retailer.
I wouldn’t buy mattresses, upholstered furniture or stuffed animals secondhand due to the risk of bedbugs or other things that might come into your home with it. Basically, if it has stuffing, I won’t buy it used.
I wouldn’t buy children’s safety items secondhand. I’d avoid buying secondhand cribs, car seats and safety helmets. That’s mostly because I don’t know the history of those items and it’s important that they protect my child.
I sometimes see strange things like makeup at secondhand stores. I’d avoid it. I’d also probably avoid secondhand shoes. Those are more due to germ avoidance than anything.
Aside from that, I’m pretty okay with buying almost anything secondhand. If it’s an electric item, I’d plug it in first and make sure it works.
What’s the advantage or reason for subscribing to Spotify? Right now when I want to listen to music I just go to YouTube and search for the artist I want and it autoplays a bunch of their music and then autoplays other music and if it goes into something I don’t like I just search for something else. I can make my own playlists, too. There are ads sometimes, sure, but there is very little music I want to listen to that I can’t just find for free on YouTube.
Ad avoidance is definitely one reason people subscribe to Spotify. I think another big reason is that it’s very good for helping you discover new music that you might like. They bake in a lot of features to help with that. Some people get Spotify as part of a bundle with other content services like Hulu, so the cost for Spotify itself is low for them.
I think if you listen to music a lot — multiple hours a day — you might get a lot of value out of Spotify. If you don’t listen to music that much, then your described strategy of listening to YouTube is a perfectly good one, and it’s free.
When I’m working, I listen to non-music things that help me focus, and when I’m in the car, I usually listen to NPR or podcasts. I generally only listen to music when I walk (and only sometimes I walk without audio, and other times I walk with an audiobook or podcast) or when I’m cleaning, and Spotify doesn’t bring quite enough value to me for just that purpose.
I have had a small mixed breed dog for 10 years. I take him to the vet regularly for his shots and everything, but he’s never had any health issues.
Last month he stopped eating very much. His appetite went down to about 20% of what he normally eats. He has always self-regulated his food and I would just refill his food once a day, but now it’s every 3-4 days. I started to notice he was getting even skinnier and he was sleeping all the time. He used to patrol the apartment constantly and now he just sleeps next to me all the time. I took him to the vet and he has chronic kidney disease. The vet laid out treatment options and they’re all incredibly expensive, more than I can really afford. But I feel utterly horrible at the thought of just putting him to sleep.
He doesn’t seem to be in pain and the vet thought that any pain he’s experiencing now is minor and that he probably just feels tired and not hungry. I asked what would happen if I didn’t get any treatment and the vet said he would just slowly get worse, vomit often and eventually experience significant pain before dying.
I’m not sure what to do and am hoping you’ll have some advice.
My honest advice would be to determine how much you can reasonably afford to give your dog treatment, then contact the vet and ask what is most effective with the amount you can afford.
Most veterinarians truly love animals and will want to give them the best care that they possibly can, whether it’s actually treating the disease or providing palliative care. I would really lean into your vet’s advice here. You just need to be realistic with your vet about what you can afford.
For now, cuddle with that little dog and make sure that the dog knows how much you love him. Let him snuggle right up next to you as much as he wants because that closeness is likely making him feel a little better.
Do you think it’s risky to buy Christmas lights from the Dollar Tree? I used some to decorate my apartment and my brother said that cheap lights are a giant fire hazard.
Most holiday light strands are made quite cheaply in overseas factories. I think, given their simplicity, that they’re all relatively safe if you use a few sensible precautions.
First of all, don’t use incandescent bulbs, which are much riskier. Instead, use LED bulbs, as they glow while producing far less heat and using far less energy. Check and make sure the lights you bought were LED lights (they probably are these days, but make sure).
Don’t overload any extension cords with lights. Ideally, you have only one or two strands plugged into a single extension cord for indoor use.
If you’re doing outdoor lights, all of the strands should be designed for outdoor use.
I’d also recommend getting a timer for any holiday lights so that they automatically turn off and you don’t have to remember to flip any switches or unplug anything when you leave or fall asleep. It’s a bad idea to leave any light strands running constantly, both for energy use and safety.
If you’re doing those things, I think you are fine. Better strands are more likely to last for many years, but with proper use, I don’t think either is a significant fire hazard.
I graduated from college in May 2018 and it took me 12 months to get any kind of job in my field. This job doesn’t pay well but it is a good resume builder so I’m happy. When I got the job, I needed a car to get there so my father said he would help with car payments and that I should get a good reliable car, so I did. I got a 2016 Toyota Corolla that I love, currently with 37K miles on it.
My father helped at first, giving me $200 a month, but he told me he was “short” in September and hasn’t given me a dime since. I am really struggling to keep up with the car payments and would have bought a cheaper car if I had known he wouldn’t come through. I talked to him about it and he just said times are tough for him right now.
I’m not sure what to do next. I seem to be a little underwater on the car so I can’t just sell it and pay off the loan. Any ideas?
In your situation, the first thing I would do is call my lender and see if there are refinancing options that can lower your monthly bill. If you’ve made the first eight or so payments in full and on time, there’s a good chance that they will refinance your loan resulting in a lower payment that you might find easier to keep up with. If your current lender won’t work with you, stop by a credit union in your area and see if they’ll help.
Another option is to go back to the original dealership and see if you can trade in the car for something less expensive. Simply tell them that you’re struggling to keep up with the payments on this car and want something you can more easily afford.
Most other options are going to hurt your credit. You obviously have the option to start lagging on your car payments, but that will hurt your credit and eventually lead to repossession. You can also simply buy a cheap car from another dealer and then just return this car or allow it to be repossessed.
All of those choices are valid options. I’d probably start with calling the lender.
For other readers who might be thinking about arrangements like this, be very wary. Make sure that you don’t put yourself in a really problematic situation if the help doesn’t arrive as promised. If you would be in a real financial jam if someone didn’t come through on a personal spoken promise of financial help, don’t go through with it.
I want to have an “end of the year” dinner party and have some friends over between Christmas and New Year’s Eve, but I was thinking about the cost of it and it seems really expensive. I know I could “pot luck” it, but that seems kind of tacky too.
My honest suggestion? Make a couple of different soups and some rolls and have that be your dinner.
Soups are incredibly inexpensive to make. They can be made in a slow cooker and can sit out for hours, allowing people to get food whenever they arrive, so they’re very convenient in terms of letting you mingle with guests. You can easily make two batches for different dietary needs, too, as long as you can borrow another slow cooker. Soup is really warm and filling on a cold winter’s night, too.
When you send out the invite, simply say something like “If you want to bring something, please bring a bottle of good wine” or something similar that’s appropriate for the event you’re having, and then simply open those up to share. That way, all you really need to cover are the soups (and whatever you want to accompany them with).
This is pretty much what Sarah and I do when we host dinner parties, particularly in the winter. We have a couple of soups in a slow cooker with bowls and spoons and accompaniments out for people to eat when they arrive. People can just grab a bowl and a spoon and serve whatever soup they like.
What are your thoughts on buying from Amazon from an ethical perspective?
My feelings on this mirror this good article from Current Affairs. I agree that Amazon’s chase for efficiency definitely walks an ethical edge, but I think that simply existing in the modern world means that we’re interacting with unethical companies on a daily basis, and that’s a difficult thing to effectively resolve. Either we live as hermits (and even then, it’s likely not absolute) or we accept that we’re likely dealing with unethical businesses.
Furthering the problem is the fact that Amazon’s most profitable business isn’t selling goods through its website, but rather their web services. Amazon Web Services powers a lot of the websites and services on the internet. To say “I reject Amazon and won’t use it” would largely require an abandonment of the modern internet.
I genuinely don’t know what the right answer is. I don’t think anyone does.
I do believe that the “wrong” that’s being committed here isn’t the act of purchasing from Amazon or from using Amazon’s products, but in how Amazon treats its workers. Because of that, I think the best long term solution is to fix Amazon. I am not an economist or a political scientist, but I believe that there are reasonable ways to do this that benefit everyone involved, from the investors to the employees to the customers.
Basically, the issue is society, not Amazon. As long as we as a society are OK with any company treating their employees as Amazon does, companies will treat their employees like Amazon does.
As for boycotting, I generally save that for companies that appear to be intentionally doing harm rather than just being ruthlessly efficient. I think Amazon is pretty clearly in the ruthlessly efficient camp, even if they debatably carry it too far at times.
What kind of holiday traditions have you established with your kids?
We have an advent calendar that we open faithfully throughout December. The wells are really big and contain a small treat for everyone in the family, usually something like a Hershey’s kiss. We usually open it after dinner.
We have a lot of extended family gatherings for the holidays. These used to be very gift-oriented, but over time we’ve slowly dialed down the gifts and they’re more like a big dinner party. When we drive to visit extended family at those events, we usually listen to a handful of holiday albums that we all know by heart and we sing along.
My daughter’s group of friends, who are all into singing and choral music, usually go out caroling. It’s a little anachronistic, but they usually get a lot of support from the houses they walk by when they’re singing.
We usually open presents all together on Christmas morning, and then Sarah and I make some kind of special meal. Usually one of us will plan the meal and the other will be an assistant for making things; this year, I’m on the meal planning lead.
I usually try to cook chestnuts. I usually burn them. I’ll pull them out, decide they’re not done yet, put them back and keep repeating this until they’re burnt. Burnt chestnuts: a family tradition.
When I think of “Christmas traditions with my family,” those are the things I think of.
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.
The post Mailbag: Questions About Moving, Disney World, Spotify, 529s, Holiday Lights, and More! appeared first on The Simple Dollar.
PenFed Checking And Savings Review: Full Service And Solid Rates
If you’ve been looking to join a credit union instead of a bank or want to add a credit union account for your checking and savings, PenFed is worth checking out.
While they don’t have the highest checking and savings APYs, they are reasonable and competitive for a full-service credit union. In fact, PenFed made our list of the top 5 credit unions nationwide of 2020.
PenFed’s mobile app allows you to do all of your banking online or on the go through their mobile app, no matter where you are in the U.S. and even some locations outside of the U.S. In this article, we’ll review PenFed’s checking and savings products.
- Competive interest rates
- Large nationwide ATM network
- Minimum balance required to avoid checking account fees
PenFed Checking And Savings Details
PenFed Credit Union
Checking, Savings, Money Market, Certificates
0.05% to 0.90% APY
Who Is PenFed?
Pentagon Federal Credit Union is a full-service credit union. They were created in 1935 and have $25 billion in assets. PenFed is headquartered in McLean, Virginia. They used to restrict membership to a relationship with the military or federal government but have recently opened up to everyone.
PenFed services all 50 states, including the District of Columbia, Guam, Puerto Rico, and Okinawa (Japan). They are federally insured by NCUA and are an Equal Opportunity Lender. In addition to PenFed checking and savings accounts, members can also access home, car, credit card, and student loan products.
What Do They Offer?
PenFed has one checking account and four savings products. They have a network of 68,000+ ATMs. You can bank online or through their mobile app. PenFed has nearly 50 branches across 16 states and the District of Columbia, Guam, Puerto Rico, and Okinawa.
The PenFed website shows its accounts earn interest (APY) and dividends. The terminology can make it sound as though you get the APY plus dividends. That isn’t the case. Dividends are simply being used interchangeably with interest (APY).
Access America Checking Account
You’ll need to deposit $25 to open a checking account with PenFed. PenFed checking accounts do earn a little interest — 0.20% to 0.50% depending on account size as shown below.
- 0.20% APY on a daily balance of less than $20K
- 0.50% APY on a daily balance of $20K or more up to $50K
In addition to the listed APYs, you can also earn dividends with a monthly direct deposit of $500 or more. As well, to avoid the $10 monthly fee, you’ll need a daily balance or monthly direct deposit of $500 or more. Overdraft protection is available but is subject to approval.
Premium Online Savings Account
The Premium Online Savings Account pays 0.90% APY on balances up to $250,000 and only requires a $5 deposit. There are no monthly fees. However, there also is no ATM access.
Be aware that savings accounts have more restrictions than checking accounts. Due to federal law, you can only withdraw money from your account up to six times per month. You’re allowed up to $10,000 per day in deposits and a total of $50,000 for the month.
Regular Savings Account
The Regular Savings Account pays only 0.05% APY on all balances. But in exchange for giving up that interest, you gain ATM access. However, if you can get by with transferring money to your checking account before making a withdrawal, the Premium Savings Account is clearly the way to go.
Money Market Savings Account
The Money Market Savings Account requires $25 to open and doesn’t lose ATM access. There are no monthly fees and you get free checks upon request. The account pays interest through several tiers that are dependent on your balance:
- 0.05% APY — $10,000 or less
- 0.10% APY — between $10,000 and $99,999
- 0.15% APY — $100,000 or more
See how this compares to the top money market accounts here >>
Money Market Certificates
You’ve probably heard of a certificate of deposit (CD). Credit unions call these simply “certificates,” but they are basically the same.
PenFed has several certificates to choose from. All require a $1,000 deposit to open. Just like a CD, your money must remain in the certificate until maturity or you’ll pay an early withdrawal penalty. Dividends are compounded daily and paid monthly.
The following certificates are available:
- 6 Month — 0.40%
- 12 Month — 0.70%
- 15 Month — 0.70%
- 18 Month — 0.70%
- 2 Year — 0.75%
- 3 Year — 0.80%
- 4 Year — 0.85%
- 5 Year — 1.00%
- 7 Year — 1.05%
The mobile app for PenFed checking and savings includes all of the features you’d expect from full-service credit unions. You get instant check deposits, bill pay, ability to send money to almost anyone, account management, and the ability to transfer funds between your PenFed accounts.
Are There Any Fees?
The majority of PenFed’s accounts don’t come with fees. However, its Access America Checking Account has a $10 month fee if certain minimums are not met. To avoid the fee, you’ll need to keep a minimum balance of $500 or set up a $500 monthly direct deposit.
How Do I Open An Account?
You can visit Penfed.org or a local branch if you have one near you to apply for membership. If approved, you’ll need to deposit at least $5 to open an account.
Is My Money Safe?
Yes, money deposited with PenFed is federally insured by the NCUA. Like FDIC insurance for banks, NCAU insurance protects up to $250,000 of credit union member deposits per account.
Is It Worth It?
If you’re looking to open a checking or savings account with a credit union, PenFed is a full-service credit union that pays up to 0.50% on checking account deposits and up to 1.00% on savings. It has about 50 branches in 13 states, plus a few outside of the U.S. and includes NCUA protection. For those reasons, PenFed checking and savings is certainly worth considering.
But if you won’t be able to meet the requirements for waiving PenFed’s monthly checking account fees, you might want to look at these free checking accounts instead. And if you’re comfortable with managing your checking or savings accounts with minimal support, you might be able to earn higher rates with an online bank. These are our favorite online banks for 2020.
PenFed Checking And Savings Features
Checking, Savings, Money Market, Certificates
Regular Savings: 0.05% APY
Premium Online Savings: 1.00% APY
Money Market Savings
~50 across 13 states
68,000+ fee-free ATM network
Customer Service Number
Customer Service Hours
Mobile App Availability
iOS and Android
NCUA Charter Number
The post PenFed Checking And Savings Review: Full Service And Solid Rates appeared first on The College Investor.
The Sweet Spot
“Success can get you to the top of a beautiful cliff,
but then propel you right over the edge of it.”
As a Mustachian, there’s a good chance that you are a bit of an overachiever.
Maybe you fought hard to get exceptional grades in school, or perhaps you have always dominated in your career or your Ultramarathon habit or your hobbies - or maybe all of the above.
In the big picture, this usually leads to having a “successful” life, because of this basic math:
How much work you do
How much society happens to value your work
The Nitty Gritty of Traditional Success
Now, lest the Internet Privilege Police head straight to Twitter to start writing out citations, Traditional Success is not a measure of your worthiness as a human being. We’re just talking about the old-fashioned, Smiling 1950s Man definition of success.
And thus, you could say that on average, doing more stuff produces more traditional success.
But then what?
This is the point where a lot of smart, driven, born-lucky people drive themselves up the Winding Road of Challenge and then right off the edge of the Cliff of Success.
If you’re still on the way up, or stuck at the bottom, it is difficult to even imagine the idea of “too much success”. But it’s a real thing, and it happens much more quickly than the modern overachiever would like to admit. Observe the following cautionary tale:
Diana is the director of engineering in a Silicon Valley tech startup. The work is intense, but they are almost over the hump - the company went public last month, and she owns shares that are worth over $10 million at today’s share price. They will vest over the next five years, so she just needs to grind this out and then she will be set for life.
Sounds great, right?
Except this is Diana’s third smashing success. She was already set for life after the second company was acquired, and even before that, her first decade as a rising star at a large company had already left her with over $2 million of investments and a paid-off house in hella expensive Cupertino, California. She had more than enough to retire, twenty years ago!
To many people who are less fortunate, the present situation would still sound like great fortune, and in some ways, it is. Becoming a Director of Engineering is (usually) far better than a punch in the face.
But Diana is now 52 years old, with a collection of increasingly severe back and neck problems and a few medical prescriptions piling up. She has two grown children in their twenties, but wishes she had been able to spend more time with them as they grew up. She has all the money in the world, but still almost no free time, and this next five years is starting to look like an eternity.
What happened here?
Diana is in good company, because many of our hardest-working people fall into this same trap. They have the talent and the great work habits figured out, but they are still missing one last concept - the idea of the sweet spot.
Diana could have stopped after the first company, or the second, but her career success took on a momentum of its own, so she kept doubling down without stopping to consider why she was doing it - and what she was giving up in exchange.
Once you learn to see the phenomenon of the sweet spot, you will start noticing it everywhere. And it is an amazingly useful thing to start watching and fine-tuning to get the most out of your own life.
The Sweet Spot of Physical Training
When a non-runner starts running, they will see immediate benefits. In the process of going from being unable to jog across a parking lot, to being able to easily jog a brisk mile, your entire body will transform for the better. Muscles and bones get stronger, heart and lungs expand and reach out to give your body a healthy embrace, brain functioning and mood and hormones smooth out and normalize.
Training your way up to become a two mile runner still brings great benefits - just slightly smaller. The fifth through twentieth mile turn you into a hyper efficient machine, but some people start seeing joint injuries as they rise through the ranks.
And by the time you reach the fringe world of 100-mile runners, serious injuries and surgeries are completely normal - as well as unexpected organ failures in otherwise young, healthy people. The sweet spot for daily running for maximum health is somewhere the middle.
All around us, seemingly unrelated things follow this same pattern, from career work to physical exertion to parenting strategy.
Fame and Fortune - be careful what you wish for
Fame definitely has a sweet spot. Building up a good reputation in your community can open the door to better friendships, jobs, relationships, and more fun in general.
But as that reputation expands outwards to become fame, you get the “reward” of constant coverage in gossip magazines and waking up to find photographers and news reporters on your front lawn. At the extreme end, you need to mobilize a team of armored vehicles and line your route with snipers every time you leave your well-guarded compound.
Even money, our humble and ever-willing servant is subject to this phenomenon. It certainly helps us meet our basic needs, but there is a certain point at which Mo Money can become Mo Problems.
The first bit of monetary surplus can be fun as you can afford a nice house and good food. Then the next chunk seems fun but also causes distractions as you rack up second and third houses and ever-more elaborate possessions and vacations that take a lot of energy to keep track of.
And from there it goes downhill as tabloids start keeping track of your wealth and scrutinizing your choices, hundreds of people mail in pleas for your generosity, and you end up with a full-time job just making sure that the surplus goes to good use. This life arrangement can still be enjoyable for some people, but I would definitely not wish it upon myself.
On and on this pattern goes. A curve with a sweet spot in the middle. The optimal amount of calories to consume in a day. The volume at which you will enjoy your music most. The right brightness of light to illuminate a room. The number of friends with whom you can have a meaningful relationship.
Why does it occur in so many places? I believe it is because this is how our brains are wired in the first place.
Humans are a ridiculously adaptable creature, but we do still come with limits.
And when you respect those limits and fine-tune your life within the sweet spot for all of the main pillars for happy living, you end up with the best possible chance at living a happy, prosperous life.
Interest rates are still at WTF-low levels, so if you haven’t already done so, I recommend checking your current home mortgage and student loan rates. Either at your local credit union, or online via a service like Credible.
Note: This is an affiliate link, to learn why I use these even when I am supposedly retired, read this.
The Curse Of the Overachievers - Revisited
So now you see the problem - overachievers like us tend to get really good at a few things like a career or an athletic pursuit often specializing so much that we neglect other things like overall health or personal relationships.
And our society notices and rewards us for the success, which just reinforces the behavior, so we take things to even higher extremes, often without stopping to think about the reason behind it.
Okay, So What Now?
Once you see the pattern of the sweet spot, it is impossible to un-see it. So it becomes pretty easy to float up and look at your entire life from above, like an outside observer.
And from up there, you can see the areas where you have enough, and places where you may have already gone overboard, and the corresponding things that you have left neglected as the price of that success.
Over the past year I’ve been looking at my own life from this perspective, coming up with quite a few of my own diagnoses:
Money: enough. Additional windfalls don’t seem to bring me any lasting joy, but I also don’t have so much money that it makes me nervous. It’s enough to feel safe and empowered, and that’s all I need. Meanwhile, giving away money has brought me lasting happiness, without creating a feeling of shortage or regret.
Career Success (blog): It Varies. When I was really working on this MMM job in the mid-2010s, it started to take over too much of my life. Emails, opportunities, travel and public attention all reached levels where I actually started to have less fun. So I tried dialing it back, as any long-term readers will have noticed. And sure enough, life improved. But then I went too far and started feeling a loss from letting this valued hobby slip away. I’ve been trying to get back into the groove, which revealed another problem - detailed at the end of this list.
Friendships: Not Enough. I have found myself not being able to keep up with close friends, and had difficulty making or keeping plans, partly out of feeling overwhelmed with life details in general. Still, the opportunities abound here in my local community, and the people are wonderful. So I have the opportunity to keep working at this.
Health and Fitness: Enough. Since I was about fourteen years old, eating well and getting a lot of varied exercise has always been a kind of non-negotiable pillar for me. Nothing extreme, but just very consistent. I think this has been paying off as I feel healthy every day and have never had any physical or health problems in these 30+ years since.
Parenting and Kids: Enough (an A+!) Since 2005 I made “being a Dad” my primary goal in life, quitting my career to do so. It’s the only thing I can truly say I have done the best I could at, and I’m really proud of that. But part of this success came from only having one kid - both of us parents knew we couldn’t handle any more, given the overall conditions of life back then. So for us, the sweet spot was One Child - and absolutely no regrets in that department.
Personal Projects and Daily Habits: Not Enough. I get great satisfaction from working on challenging things and making progress. But far too often, I just can’t get it together and I squander entire days on accidental distractions. Planning to go out for a day of work can lead to searching for lost sunglasses which can lead to finding a lost to-do list which can lead to opening the computer to look something up and several hours disappearing. On and on these tangents can go, often leading to me not getting my primary, happiness-creating goals for the day accomplished.
I discovered that I have a pretty severe and textbook case of Adult Attention Deficit Disorder, which gets magnified if there are any sources of stress in my life. So I’m working on that (keeping stress down and also targeting habits, diet, exercise and even trying some medication), which will hopefully improve all other areas of life as well.
What am I missing? I’m still working on thinking it all through, so this list will surely grow.
Your life surely has a completely different array of surpluses, shortages and sweet spots than mine. Your assignment is therefore to write them all out tonight, and see where you stand in each area, and decide what to change. Many of the changes are quite easy to make, and yet the results are nothing short of life-changing.
In the comments: what are your own areas of surplus and shortage? And what’s your plan to help restore balance to your life?
Woman in TFSA overcontribution fight with CRA has penalties cut from $17,000 to just $300
While most of us use our TFSAs as general purpose, tax-free savings or investment vehicles, the
on perceived misuse of the accounts by assessing some taxpayers with an overcontribution tax, and others
. Two separate tax cases, out last month, dealt with TFSA penalty taxes.
Non-resident TFSA contributions
The first case involved TFSA overcontributions. If you overcontribute, the penalty tax is one per cent per month for each month your TFSA is in an overcontribution position. But there’s a separate, additional penalty tax of one per cent per month if a non-resident contributes to their TFSA, which is what happened in the first case.
In August 2006, the taxpayer left Canada to begin her medical studies in the U.K. While in the U.K. as a student, and, on the advice her Canadian investment adviser, she made contributions to her TFSA in 2009 ($5,000), 2010 ($1,500) and 2012 ($494). She completed her studies in June 2011 and then commenced two years of residency training in family medicine. In November 2012, she registered with the Canadian Residency Matching Service as a fully licensed U.K. doctor, to obtain a residency position in Canada. Finally, in April 2016, she obtained a residency position at a Vancouver hospital and in June 2016, returned back to Canada.
Much to her surprise, in 2018 the taxpayer received Notices of Reassessment from the CRA for 2009 to 2016, assessing her a total of $17,006 of TFSA penalty tax and arrears interest, asserting that she was a non-resident of Canada when she contributed to her TFSA. Indeed, to be able to contribute to a TFSA (and to accumulate the annual TFSA contribution room), you must be a resident of Canada for tax purposes.
An individual’s residency status is determined on a case-by-case basis, taking into account many factors. The most important consideration is whether or not the individual maintains residential ties with Canada. Significant residential ties to Canada include: a home in Canada, a spouse or common-law partner in Canada and dependants in Canada. Secondary residential ties include: personal property, such as a car or furniture, in Canada; social ties in Canada, such as memberships in Canadian recreational or religious organizations; economic ties in Canada, such as Canadian bank accounts or credit cards; a Canadian driver’s license, a Canadian passport, and provincial health insurance.
The taxpayer argued that during the period that she was in the UK, she maintained a room in her parents’ home and always regarded the space in her parents’ home as her permanent home. She kept many of her possessions there until August 2016, when she moved to Vancouver.
While studying in the U.K., she kept strong secondary ties to Canada, including funding her medical school fees and expenses with annual loans from a student line of credit from a Canadian bank, as well as through various federal and Ontario student loan programs. She retained and renewed her Canadian passport, and obtained Canadian citizenship for her two daughters who were born abroad. She kept and renewed her Ontario Driver’s licence, her Canadian bank accounts and credit cards, and maintained her Ontario Health Insurance as an overseas student. She continued to be listed as an occasional driver on her parents’ vehicle insurance and returned to Canada nearly every year from 2006 to 2012 to maintain her ties to Canada. Lastly, she filed Canadian income-tax returns as a resident of Canada that were always assessed as filed.
In other words, although the taxpayer was physically absent from Canada during her years abroad, she argued that she maintained significant ties to Canada during her period of her absence and “intended to return to Canada upon completion of her medical studies and has, in fact, returned to Canada.”
In a consent to judgment issued last month, the CRA conceded that the taxpayer was a resident of Canada until June 30, 2020. This was a negotiated date that was selected by the CRA, as it was the date the taxpayer had completed her medical degree and could have returned to Canada, in theory, to complete her residency/licensing training. The taxpayer became a non-resident on July 1, 2020 and resumed Canadian residence on June 6, 2020, when she began her medical residency position in Canada.
The result, therefore, was that only the 2012 TFSA contribution of $494 was subject to non-resident penalty tax and interest, which totalled approximately $300, a far cry from the initial TFSA reassessments totaling over $17,000.
Advantage rules 100 per cent penalty tax
The second recent case involving TFSA penalty tax was at the Federal Court of Appeal and concerned the
Income Tax Act
designed to prevent abuse and manipulation of all registered plans, including TFSAs. If you find yourself offside these rules, you could face a 100 per cent penalty tax on the fair market value of any “advantage” that you receive that is related to a registered plan.
The taxpayer was appealing a 2018 decision of the Tax Court in which he was reassessed nearly $125,000 in penalty tax applicable to the advantage the CRA says he received in connection with the transfer of private company shares to his TFSA.
The taxpayer went to court to challenge the constitutionality of the 100 per cent advantage tax. He argued that since the CRA has the discretion to reduce the 100 per cent advantage tax to zero, Parliament “improperly delegated the rate-setting element of (tax) … to the (CRA)” in contravention of the Constitution Act.”
Not surprisingly, the Tax Court, and now, the appellate court, dismissed the taxpayer’s appeal, concluding that Parliament, via the explicit wording found in the Income Tax Act, “has prescribed the liability for the tax, the persons on whom it is imposed, the conditions on which a person becomes liable for it, and criteria by which the amount of tax can be determined. (It) delegates nothing to the (CRA).”
The Court did find that there was a wider issue to be considered as to whether the CRA’s power granted under the Income Tax Act to reduce or cancel the tax constitutes “an invalid delegation of taxation power to the (CRA).” But, due to a “lack (of) adequate submissions and fully developed reasons from the Tax Court,” the appellate court refused to weigh in, concluding: “We should leave the broader issue for another day.”
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.
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