Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
What’s the appropriate amount to give to charity for my income level? I make around $700,000 a year, and give around $10,000 a year to charity, which seems measly for my income level. Some days I think this is absurdly low—with current levels of inequality I should be giving half of my after-tax income to charity. Other days I think, hell, my effective tax rate is about 50%. Do I really owe society more?
—Am I A Scrooge?
Dear Scrooge,
Acknowledging inequality says a lot about you, so no, I don’t think you’re a total scrooge. Honestly, I would get angry paying that much in taxes myself. And you may have other situations where you’re being generous—supporting family members who have less, for example—that aren’t strictly “charity,” as most would understand it.
People’s opinions may differ, but I don’t think you should have to give to a charitable cause just in order to feel better about your high income. Instead, acknowledge your high income as a gift and find a cause you feel passionate about. Donating just because is different than donating to a cause that keeps you up at night. You may find that, as you become more passionate about the work being done, you may want to donate more, whether that be dollars or time. You could also look into making a recurring donation, like setting up a scholarship fund at a local non-profit. You’d be making a difference while changing someone’s future.
Dear Pay Dirt,
I am a single mother of two kids, 8 and 13. Recently, I got a new job paying about $71,000 a year. With this salary, I can pay my bills, mortgage, and debt that I accumulated during my divorce. The issue with my previous position was that I earned $25,000 less, but the benefit was that I only worked a flexible schedule that required me to report 30 hours a week on a 9-month contract, with summers off, and during COVID I was remote for 2 years. This new job is 8:00 a.m. to 5:00 p.m., 12 months a year.
My kids and I are really struggling to adjust. Every evening is a race to bedtime with meals, homework, and extracurriculars with very little one-on-one unstructured time to just chill. The commute time, both to school and to work, is exhausting. They are off all summer, and I am paying for camp every day for them while I work. The lack of together time we had before is challenging, and we don’t have time to do anything fun or relaxing, because we are always getting ready to be somewhere or in a car. In my old position, we all knew that if we just made it to summer we would relax and reconnect, but that promise is gone.
Since getting this new job eight months ago, there has been an observable decline in mental health for all of us. We are all exhausted, my son is having behavior problems at school, and my daughter is deeply resentful that I am never fully “present.” In response to all of this, I am considering returning to nine-month employment, which would be a mental and emotional boon for my family, and financially devastating for me as an adult. The metaphorical belt I would need to tighten would cut off my circulation, but I believe that returning to my old work schedule is best for my family. What proactive financial steps does one take when they are preparing to torpedo their life, and intentionally take a lower-paying job?
—Better Off Underemployed
Dear Underemployed,
What a hard choice to make. That is definitely a significant drop in income, but I have faith that since you’ve done it once, you can do it again.
First, create a bare-bones budget. A bare-bones budget consists of necessary expenses like rent, food, and utilities—you get the picture. Only the stuff you absolutely need to spend your money on. Really analyze your spending and see if there are any areas to cut. With your current busy status, you may be spending more for convenience, like meals out, or activities to occupy your children. Make a note to cut that out to see what you really need to live on. You may be surprised you don’t need as much as you originally thought. I highly recommend The Budget Mom to learn more about budgeting, especially from a single mom’s point of view.
Next, save up an emergency fund. You need an adequate amount in savings before taking the loss in income. As you know from your past life, it’s going to be much harder to recover from emergencies or unexpected financial outlays when you make less, so it’s important you take the time now to save. Consider any debt that needs to be paid off that can free up any additional spending capacity in future. As with saving, it will be harder to pay off the debt later versus now.
Finally, be realistic in your timeline to make the jump. I know you and your kids are all anxious to return to your previous lifestyle, but do use the higher income you have now to get your financial ducks in a row. Consider talking to your kids about this plan—they’re old enough to understand. If your children know there is light at the end of the tunnel, they may be able to help relieve some pressure they are currently adding to the situation. Good luck.
Dear Pay Dirt,
My sister and I stand to inherit a lot of money once my parents pass away. Almost $8 million in cash and maybe another $3 million in various properties. Recently, my sister told me she has no interest in the properties—she lives out of state from my parents—and said she would give me the properties for the cash value and take it out of the cash that was to be split. On the surface, this sounds OK, but I am thinking of housing crashes and ending up with less in value in the long run, and not sure if I want to manage the houses or pay someone to. Should I keep them? Sell them? They are all paid off.
—To Sell or Not to Sell
Dear Sell or Not,
There is, as far as I know, no set date when your parents will pass, so to worry about what the real estate market will be like then is kind of fruitless. We can’t predict anything, although we do have some indicators of what will happen next. What goes up must come down, sure, but when that will be, no one knows. Unless there’s some other factor that’s not in your letter, that means you have more information about the timeline than would be usual, it seems like you’re trying to calculate something that can’t be calculated. And why does your sister need you to decide now?
That being said, your choice, since we’re predicting the future here, comes down to your appetite for risk and your willingness to do extra work. If you do inherit during a crash, you can see if you can make being a landlord work for a year. You may find the additional income isn’t as much as you originally thought, or it’s too much of a headache for you. If this happens, of course, you can sell the properties. If you inherit during a boom, you can sell them for a profit.
Dear Pay Dirt,
My partner and I purchased a home a year ago when inventory was low, but so were interest rates. We have a 20-year, $300,000 mortgage with a 2.75% interest rate. I am in my early 40s and they are in their late 40s. Their instinct is to make $10,000-$15,000 payments on the principal once or twice a year. My instinct, driven by the fact that we don’t want to stay in the house for more than five to seven years, is to make the necessary payments, but save additional money for retirement, or to have on hand for a down payment on a different home. Which is the more advantageous approach? Does it make sense to split the difference with larger monthly payments to pay down principal, but less than what the one or two exceedingly large payments would be? Also, how does rising inflation come to play in this situation?
For what it’s worth, they make six figures and their 401(k) was halved in a divorce five years ago. It is recovering, with a pretax 11% contribution and 7% match. I make significantly less, but save 15% of my gross income in different ROTH retirement vehicles. I’d be surprised if either of us retired in the next 20 years. I welcome any thoughts on the situation.
—First World Problem
Dear First World,
Losing half of a 401(K) to their ex sounds rough. I’m glad your partner is doing the necessary work now to catch up before it’s too late. Given your ages, and the fact that your mortgage has a comparably low interest rate, I would focus on saving for retirement, and investing. Once you are 40 you should have at least three times your annual amount of income in retirement accounts. Once you’re 50, it’s recommended to have your annual income, multiplied by six.
Paying your mortgage off early isn’t a complete waste of money, because you’d be able to shave off years of payments and money paid in interest. But since you aren’t planning on keeping the home, I wouldn’t pay off more than is necessary. I would save my money instead, and invest. By saving more now, you can capitalize on compound interest to help with your retirement.
I’m not sure how you split your finances, but if he is that set on paying the mortgage off, you could allow him to do it, and draw something up so he has more equity than you. That way you can both do what you feel is right without compromising the other one’s goals.
—Athena
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