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. Refinance timing question
2. Encouraging better financial choices
3. Old credit card debt
4. Nostalgia battles
5. Self control and financial drought
6. Risk and living off investments
7. Good customer rewards program
8. Banking on Obama’s loan plan
9. Preparing for a baby
10. Thanksgiving traditions

One topic I often write about on The Simple Dollar is focus. While I write sometimes about tactics I use for improving my focus on the task at hand (thus improving my work, thus increasing my income and improving my career), there are still factors I can’t control.

For example, it doesn’t matter how much I try, there are still some periods where focus just doesn’t come to me. I’ve been struggling with this mightily all day today.

There are also times where unexpected events destroy my focus. Last night, our 1 1/2 year old woke up several times in the night, apparently from bad dreams. A poor night of sleep completely destroys my focus.

My take on it? Spend your time worrying about the things you can control (like tactics for improving your focus) and not worrying about the things you can’t (biological and life quirks).

Q1: Refinance timing question
In May of 2008 I purchased a home for $210,000. After closing and 10% down I was left with a mortgage of $192,315 at 6.8%. I could not refinance until 4 years into the mortgage due to a 1st time home buyer program (which will be this upcoming May of 2012). I increased my monthly payments by $375 in April 2010 and that has been applied to the principal which is now down to $177,070. My original goal was to be close to having 20% of the home paid off by the time I was able to refinance. If the house still appraised for $210,000 I would need to owe $168,000. My only other debts are a college loan of $30,000 at 3.5% and approx $4,000 on my wife’s auto loan.

Should I refinance as soon as possible, in May of 2012, with hopes of lowering the interest rate to 4-4.5%. I only plan on staying in the house for another 3-4 years, how much would the closing costs have to be to offset the savings in the interest rate? What’s the difference (or benefit) between a 10, 15 or 30 year mortgage if I don’t plan on staying in the house that long?

My wife was never a big fan of paying extra into the mortgage to lower what we owe on the house. She would have rather opened a new savings account and used that $375 a month in savings for a down payment for the future house. I thought the payments on the mortgage were like saving the 6.8% interest as opposed to only receiving a 1% interest rate in a savings account. Am I right with this assumption or is she right? If the housing market were to continue to go down we would eventually owe that money one way or the other right, so why not pay it down and stay ahead of the market?
- Shane

You’re right in that putting extra money into the mortgage will effectively earn you that interest rate.

However, the big disadvantage that it holds is that money put into your mortgage is really not very liquid at all. You can only recoup it if you sell the house or if you pay off the entire mortgage and have a payment-free period, as a home equity loan essentially undoes the good work you’ve done by paying ahead.

The savings account, while not earning much of an interest rate, is highly liquid. You can easily take it and use it for whatever you need to in life.

My feeling is that once you have a cash emergency fund built up in savings to handle what life may throw at you, you’re better off paying ahead on the mortgage.

Q2: Encouraging better financial choices
I’ve been reading your blog for a while now, and I see a lot of similarities between your family money situation growing up and my own. We were a family of 6 (dad, mom, and 4 kids) with only my dad working. Money was always super tight, and I remember it being a constant struggle to make ends meet.

Now, I’m 27 years old and have “made it” in my family’s eyes. I went to college and earned my BS in accounting and my MBA. I work in the accounting department at a local bank. We have two early-mid 2000 vehicles that are paid off, have no credit card debt, contribute to my 401k and save regularly from each paycheck. Not that we’re rich by any means, however. I make $48k a year (decent money for the Midwest (Indiana), we eat almost all our meals at home, we don’t have cable tv or expensive hobbies. Basically, I like to think we’re making good long-term financial decisions.

The older I get, the more clearly I see the poor financial decisions that my parents have been making my entire life. They struggle and struggle to put food on the table and pay bills, but they’re making a two-day trip (gas, hotel, food) to visit my sister at college (6 hrs away) when she’s going to be home in two weeks for Thanksgiving anyway. Whenever we visit with my parents, most of the conversation topics they bring up are about their money troubles. I think it’s their subtle way of trying to get me to feel sorry for them and give them money (which I will not do). I’ve offered to sit down and go over their finances with them to see where they can do things differently, but they are not interested.

My question to you is how/if you’ve had any success in getting your family to make better financial decisions. Any advice is appreciated.
- Chris

To put it simply, you can lead a horse to water but you can’t make it drink.

A foundation of sensible financial choices can’t be built from the outside. It can only be built from the inside through a person’s desire to improve their situation and the willpower to make the hard calls to make it happen.

When you’re on the outside – as you are – pushing people to make changes they don’t want to make does nothing but cause relationship friction.

Your best approach is to simply be passive about it. Encourage the good behaviors that they mention by speaking positively about them. Drop an applicable tip for saving money every once in a while. Most importantly, prepare your own financial situation so that you can survive whatever they do.

Q3: Old credit card debt
I have had a few credit cards go into collections and 3rd party collection agencies. My question is what is the best way to pay these credit cards? I havent paid on these cards in 4 to 5 years.
- Daniel

The first thing I’d do is get a copy of my credit report from the federal government (using their annual credit report tool). Find out what debts are actually listed there, then track these debts down.

Before you do this, though, a caveat. It is awesome that you’re doing the right thing and paying off your debts. It’s the responsible human thing to do. However, strictly in terms of your credit, seeking out these debts at this point will do far more harm to your credit score than good. After seven years, unpaid debts vanish from your credit history.

I think this policy is completely broken and rewards dishonesty and avoidance of debt past a certain point, but it’s how the credit game works. As for me, I’d still do the right thing and pay it off.

Q4: Nostalgia battles
One thing I can’t help but notice is that everything old is constantly new again. Companies seem to constantly bring out revisions of things that I loved from my childhood and I find that I have a weakness toward them simply because of the fond memories they bring about. How do you fight this?
- Amy

I usually combat this type of sentiment by asking myself, “Why am I buying this?”

Almost always, items that I’m buying because they hit a nostalgic nerve completely fail this test. I usually don’t have a good reason for buying the item. I usually only picked it up because it hit some emotional response to something good that happened in my childhood.

I try to ask that question of everything that I buy.

Q5: Self control and financial drought
A lot of your advice is going to necessarily be for people who have some sort of income, but I don’t, and I haven’t for two years. I’m disabled, and if all goes well I’ll have SSI sometime in the next six months.

My question is this: how do you spend enough after the drought that you don’t spend too much? How can I restrict my spending when I’ve had so little? I have a list of bills to clear and things that absolutely must be bought, but I also want to set aside a little bit so that I’m not tempted to spend a lot. For the last two years I’ve had NO income, no spending money, nothing except food, shelter, and the occasional necessary item gifted. Christmas and gift money went into purchasing things I needed. (Mostly toothpaste, meds, and toiletries. The only treats I’ve had have been comfort foods with my food stamps.) I’m really scared that I won’t be able to control myself when I do have money after this drought! Do you have any advice?
- Veronica

The technique to use here is what is commonly called “paying yourself first.”

Simply put, the second you get a paycheck from SSI, you take it to the bank and put most of it in checking, but some of it straight into a savings account, not to be touched until you absolutely need it. Do this right off the bat, before it even touches your checking account.

Then, forget about that savings account. Only pay attention to it if there’s a very good reason for using it, such as a deep emergency or something like that. Don’t use it to buy anything that isn’t incredibly vital.

In other words, live on less than you make and bank the difference until that rainy day comes along when you’ll need that difference.

Q6: Risk and living off investments
I have 2 questions. I have no debt of any kind. I am also unemployed for 4 months now. Since I had my savings, a decent apartment and received a handsome severance money, I am not only been able to survive but also am earning income around 70% of my last take home salary every month by investing my funds in different asset classes.

This earning is sufficient for my monthly expenses but I won’t be able to save unless I take some business risks to increase my income. I want personal freedom like you but my wife is very upset and is pressing me to find a job. We both are from middle class families and have been taught to take control of our spending habits and finances by our parents. She is of the view that I am walking on a thin string and if there is a drop in income for few months, we have to eat our savings which will deplete our net worth. I like my job and will consider working again if there is an offer, however the jobs are not available even at a lower grade or a lower salary. Being realistic, the best option for me seems to be doing my own thing.

Now my first question: How should I convince my wife that I have to take some risks with our wealth under present situation.

Second question: What’s your view on decrease in net worth due to decline in income.
- Roger

It depends on how much risk you’re already taking on to earn that 70% of your take home.

Quite often, when we’re doing well with our investments, it’s really easy to minimize the risks in our head. We see how the returns keep flowing in and, by simple human nature, we project the same results down the road. This is more or less how the banks got into trouble with the housing market during the last decade.

You need to look carefully at the long term history of what you’re investing in and ask yourself what would happen if 2012 were equal to the worst year in the history of those investments. How bad would your financial situation be then? How much of your life savings would you lose? Are you comfortable with that? Is your wife comfortable with that?

If you can’t make that case, then you’re already into too much risk.

Q7: Good customer rewards program
There’s a new grocery store in our area that operates on a “customer rewards” basis. Basically, you get a card and use it each time you shop. When you rack up a certain dollar amount in receipts over the last twelve months, you get a discount level on your entire purchase. If you get to higher levels, you get a higher discount. Now, without the discount levels, the prices there are just a bit higher than the store I shop at, with prices like $3.09 for the juice my kids like versus $2.99 at my store. However, at higher levels the prices are lower. Is it worth it to shop there?
- Karen

It depends on the specifics of the program. How long does it take to hit these reward levels?

If you can get to a level that causes your prices to be lower in just a month or two of normal shopping, then the long term savings you’ll get from being a customer there will save you money over the long run.

However, if it looks like it will take many months or years for you to reach those levels, it’s probably not worth the switch.

Customer rewards programs tend to help out the high-volume customers much more than the low-volume customers.

Q8: Banking on Obama’s loan plan
After 10 years of college I now have $90k in federal student loans (already consolidated, less than 5% interest rate). I make less than half of that for my annual salary, I have been making payments for almost 5 years now and have no other debt other than my mortgage. My question is should I try to lower my payment and only pay the minimum for the next 15 years and let the rest be forgiven per Obama’s plan? Is there something I’m missing?
- Amber

I would never change my financial planning based on the promises of a politician. I probably wouldn’t even alter my plans if there were a law on the books offering loan forgiveness.

Simply put, I don’t trust such programs. They change constantly depending on the priorities of the leaders in charge at the moment. In six years, we will have a different president and a significantly altered Congress. Will they be in favor of forgiveness?

Assume you’re going to be paying your debt according to the agreement already in place. If something better happens and you can quickly take advantage of it, great. However, don’t alter your plans because of what might be there in fifteen years.

Q9: Preparing for a baby
My wife and I recently learned the terrific news that we’ll be having a baby! It will be our first, so we are learning all that we can. Could you recommend some personal finance resources geared toward this big change? Or could you directly suggest any steps that we should take to prepare?

My wife and I are nearing 30 and make modest salaries. Importantly, we have chosen to live within our means; we recently bought our first house with a large downpayment and have built up an emergency fund that could cover our (current) expenses for six months. We are saving for retirement and so far have been fortunate enough to be able to plan for and fully save for several significant home repairs. Our immediate goal is to have some flexibility regarding my wife’s work schedule; we’d love for her to work her job part-time or even quit so that she can be there full time when our baby is born. A longer term goal is to get our child off to a good start financially by being able to support and develop his/her various interests (sports, hobbies, etc.). I think we have a solid foundation in place but I want to go the extra mile to get our expanded family off to the right start.
- Matt

I think you’ve got everything you need already in place. There’s really no special trick with regards to being financially ready for a baby to come. You’re going to have some extra expenses, particularly right off the bat, but it sounds like you’re completely ready for them.

Instead, I’d mostly focus on what it takes to be a good parent.

I’m going to give you the one piece of advice that I think is the most important thing expectant parents need to hear. This is the big one, right here. When being a parent gets hard, talk to your spouse about it, and when your spouse is talking about the challenges of it, listen. Communicate with each other. There are going to be times when this is hard. There are going to be times when your spouse is frustrated and you’re exhausted. Be willing to tell each other what’s hard and listen when the other one is talking. You’re a team, and a team doesn’t function well if one person is really struggling.

Q10: Thanksgiving traditions
For the first time, my family is going to be speding Thanksgiving at home without visiting other family. My wife and I want to make this very special and start establishing some traditions for our family (we have two kids, 7 and 6). Do you have any thoughts/suggestions?
- Reggie

It really depends on your specific family and what’s important to you guys. I think the best answer I can give is to share our own Thanksgiving traditions.

We usually have a meal on Thanksgiving Day both with my parents and with my wife’s parents. We usually try to fill the day after Thanksgiving with purely family-oriented activities, usually including a movie (this year, I think we’re going to see the Muppet movie). We usually also go to a holiday parade that’s in our area. The Sunday after Thanksgiving, we all participate in decorating the house together for Christmas.

Mostly, though, it’s just spending a lot of time together and enjoying being together. Time together is far more important than formal traditions.

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.

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Marie writes in: Did you ever do a cost analysis on dishwashers vs. hand washing dishes??? My dishwasher is not functioning properly [I may overstuff the thing] wondered if the old fashioned way is better economically.

This is a really tricky one to quantify, because the real cost in washing dishes comes from the cost of hot water. This is easily the largest cost component of doing a batch of dishes, as one often uses $0.40 or $0.50 of heated water in doing a batch, whether in the dishwasher or in the sink.

There’s also the problem of variability in that some dishwashers use more hot water than others and some people use more hot water than others. It’s very hard to precisely quantify these things for such a comparison.

If you want to minimize hot water use while handwashing dishes, the way to do it is to fill one basin with hot water and soap, then use cold water to rinse your dishes after they’re scrubbed. This generally uses less hot water than the average dishwasher, but even then, it’s hard to quantify exactly how much.

So, to distinguish between the two, we have to largely ignore water.

What costs are we left with, then? For starters, dishwashers run on electricity. This report estimates that a dishwasher unit uses somewhere around 1.5 kWh on average to run a load of dishes, excluding the costs of the incoming water. That’s a cost of about $0.17 or so in the average American home.

There’s also the startup cost of owning a dishwasher. This, of course, relies on the assumption that a kitchen sink is a “default” piece of equipment in a home and a dishwasher is not, which matches my experience growing up (and my first places where I lived after moving out) quite well.

This site estimates the lifespan of a mid-range dishwasher as being approximately 10 years and having a cost of $500. That adds up to $50 per year. This report estimates that an average dishwasher runs 215 loads per year, so you’d have a cost of about $0.46 per load for the cost of the dishwasher.

Since you’re using cleaning supplies in both the sink and the dishwasher, we’ll assume that those are essentially equal, too.

Thus, your total extra cost per dishwasher load of dishes versus doing them by hand is about $0.63. It’s a little bit higher than this if you do dishes by hand by filling up a basin with hot water and using only cold water to rinse the soap from the dishes.

Based on my own experiences doing both, I invest about ten minutes more doing a sink full of dishes by hand than by putting them in the dishwasher. Note that I’m not saying I can wash a sink full of dishes in ten minutes, but that my total time invested in doing a sink full of dishes starting from a big pile of dirty dishes after a meal to clean dishes in the cupboard takes about ten minutes more than it does putting them all in the dishwasher, running it, and unloading it.

Is that enough to make handwashing worthwhile? You’re saving about $3.80 per hour of handwashing dishes versus using a typical dishwasher. That, to me, isn’t enough of a savings, so I’ll usually run the dishwasher and enjoy the extra time with my family or extra time sleeping, which is worth $3.80 per hour for me.

I woke up this morning to the first snow of the year. Thankfully, it’s going to melt away in the next few hours so I don’t have to pull out the snowblower, but I did get to have some fun teaching my one year old how to throw a snowball at his four year old sister.

7 Ways to Simplify Your Life The one that really works for me at this point in my life is “early to bed and early to rise.” If I get a good night of sleep so that I can rise with the children and still feel fully rested, I tend to have a very productive day. I think the key is simply knowing yourself well enough to know when you’re most productive during a day and rework your day so you can capitalize on that. (@ pick the brain)

Selling Thrift Store Finds for Profit on eBay I have profited several times from thrift store finds, but it was almost exclusively due to trading or due to finding something at a very inexpensive price that worked perfectly as a gift. Thrifting is really worthwhile, but you’ve got to be willing to walk by 999 pieces of junk to find the one gem. (@ minting nickels)

Manging versus Micromanaging Your Money I think that micromanaging can eventually grow into simply having very strong natural behaviors for conserving money. I believe that’s exactly what happened to me over a multi-year period. (@ broke professionals)

What good interview questions are actually trying to discover During the job interviews I’ve had and that I’ve conducted, I’ve felt that it was really valuable to know what traits the person asking the questions is looking for. This is actually a pretty good list. (@ seth’s blog)

Someday, I’d like to finish my fantasy novel, and then follow that up by self-publishing it and promoting it myself starting with an electronic version and perhaps moving to a paper version.

Someday, I’d like to move forward on a long-planned series of video reviews of board games and card games that my friend and I have long discussed making and posting to YouTube.

Someday, I’d like to spend some time doing volunteer work for the two charities I care about, Jump for Joel and L’Arche Tahoma Hope, using what skills I have to increase their community presence and maximize the donations they receive.

Someday, I’d like to travel internationally with my family and show my children that the world is a beautiful and varied place.

Someday.

Pretty much every one of us has a “someday” or two on our list of things we’d love to do. They’re big things that would require a lot of time and planning. They’re things that seem incredibly exciting and compelling to us, but present some tremendous obstacles along the way.

Because those obstacles seem so daunting in our day-to-day lives right now, we simply think about these things as “someday” things. They enter into our daydreams, but we don’t take any real forward action toward them.

My Experience Reaching a “Someday”
Several years ago, my “someday” thing was being able to write full time for a living which would allow me to be at home for my children without travel and with extreme schedule flexibility.

At that time, I had a full time job in a field that was largely completely separate from writing. I had a very technical desk job that required some travel and also required my attention outside of office hours on a very regular basis. I also had a wife and a young child at home.

How did I make that “someday” dream a reality? Simply put, I started sacrificing my evenings and (quite often) my weekends to making that “someday” a reality. Instead of coming home and vegetating in front of a television show or a video game or just curling up with a book, I would spend several hours setting up, writing articles for, and promoting The Simple Dollar.

Simply put, I made that “someday” dream a priority of my free and leisure time and of my free and leisure money.

The amazing part was that once I got the project moving forward and got used to the routine of working on it, the project itself became really rewarding. Because it was something I had wanted to do for so long and it was so intrinsically tied to something I deeply enjoyed as a person (writing), the day-to-day work was incredibly fun even when I had very few readers and was making very little money with it.

The finanical rewards weren’t the real rewards. The process itself and the enjoyment I got from it was the real reward.

Reaching Your “Someday”
This brings us back to your “somedays” and mine. If you want to make these things come true, you have to start looking at your day-to-day time decisions with a discerning eye.

What’s more important to you? That “someday” dream or a new episode of The Big Bang Theory? Getting started on that big project you dream of or napping on the couch? Your big project or yet another shopping trip to the same old stores?

At the start of this month, I made a commitment to start on one of my “someday” projects and carry it forward to a conclusion. This means, for me, giving up some of the things I’d been filling my spare time with lately. It’s been challenging, but it’s been deeply rewarding at the same time.

What “someday” could you get started on starting today? Choose one that’s tied deeply to something you already enjoy doing, something that just channels it into a new direction. Let that “someday” fill your spare time.

Eventually, you may just find yourself on a new path, living your dreams.

Karen writes in:

I have a question I think it would be interesting for you to attempt to tackle. You approach so many decisions with a methodical and disciplined calculus that often leads you to great time and money savers…Can you address what I’ll call ” the children paradox” and maybe provide some insight that I am not seeing.

Children paradox: “Children cost lots of time and money, so maybe on an individual basis we have incentive not to have them. But in the aggregate, we need them (to sustain the species, economy, etc.)”

On a personal basis, I see having children as a money and time drain. At the very least, it will be an alteration in lifestyle. I question the return on investment in going down to one income (for at least some period, up to five years), incurring the cost of child care, inconveniences to lifestyle, increased living expenses, and paying for college. Where is the upside? I don’t see what my incentive is for having children. How is this in my personal best interest?

I have thought about it in terms of national duty, as in perhaps an educated person of means has a duty to help support the country’s population and pass those “striver” genes on to the next generation. I have even thought about it in vainer terms, as in some kind of personal legacy. I have even considered the need for a much older and senile future self to have someone (my offspring) check me into retirement home. I just can’t get on board with my wife, whom I believe just wants to have a child out of evolutionary instinct. She wants the experience of pregnancy and motherhood. I wouldn’t want to deny her anything, but having children seems such a weighty thing to do in order to “have the experience”. It is a huge commitment.

I know you have children that are clearly a priority for you…but how do you reconcile that investment/opportunity cost with others (being able to travel, own your home sooner, etc.)?

I think there are a mix of answers to the questions you’re asking.

For one, I think some number of parents simply fall into parenting. Being a parent isn’t really something they hold as a deep personal value, but when the child arrives, they feel a natural obligation to do the best that they can to care for that child. It’s a big responsibility and one that comes with quite a lot of emotional reward along the way, so it’s not surprising that when some people become parents, they try to do a good job. (Of course, as we all know, there are a good number of parents out there doing a poor job, too.)

Simply put, as long as there are males and females around in sufficient quantities, there will be children around in sufficient quantities. It’s just a natural outcome.

I think what you’re asking, though, is why would people choose to and plan to become parents? Obviously, parenthood is something Sarah and I thought a lot about and made a conscious choice to take on in our lives.

In many ways, it simply comes down to what’s personally important to you. For some, the process of being a parent is an important life goal. I believe that part of what I was put on this earth to do is to raise three productive and capable people who will have a positive impact on the world. The privilege to be a steward to these children as they grow into adults is a privilege I’m very proud to have and that I enjoy very deeply.

Other people have other things that are personally important to them. Some want to see the world. Others want to start a business empire. Still others work to make the lives of others better. Yet others seek to accumulate personal wealth. There are a lot of personal goals that others have that I frankly don’t understand (much as you seem to feel about parenting), but I see such goals as a positive (assuming the passions aren’t destructive to people who don’t choose to be involved in them).

I don’t think it’s a bad thing for some people to not want to be parents and to have other things that are important to them. The key thing is that you’ve found something in your life that is important to you, whatever that may be, and that you’re investing your resources into it because it fulfills you. Without that, life would be a pretty empty place, I would think.

Most of us spend our lives working for those things that are important to us, whether it’s parenting or something else entirely. It’s the motivation to get out of bed in the morning. It’s the motivation to push ourselves a little bit more.

Is choosing to be a parent an economically challenging choice? Of course it is. However, most of the things I listed above are economically challenging choices. If we hadn’t had children, for example, Sarah and I probably would have traveled a great deal more than we have, which would have eaten a lot of the money we “saved” by not having children. Instead of having our oldest son, for example, I might have memories of visiting the Temple Mount (a place Sarah and I have always wanted to visit).

Simply put, people invest their resources (time, money, energy, skills, and so on) into the things that are personally important to them. For me, one thing that’s very important is my children, so I invest my resources into caring for them. For others, children might be of little or no importance, so they choose to invest their resources elsewhere.

The purpose of The Simple Dollar is to look at ways to be more efficient in investing your resources, particularly in areas that are less important to you. For example, no one wants to have a high energy bill, so energy savings is something that all of us can use to reduce the resources we invest in our energy needs and thus raise the resources available for the other things in our lives.

Whenever I see someone doing something they obviously love, I usually think to myself that it’s a pretty awesome thing (I was actually just thinking this the other day when I watched a skilled person making sidewalk art). Most of the time, when you see a parent, you’re seeing someone doing something they love (even if it might be frustrating in the short term, which parenting can often be). Use it as inspiration. If they’re doing something they love, even when it’s challenging, why can’t I?

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Gayathri writes in: Driving 1mph slower than posted speed limit. Yeah, that’s a myth.

Actually, it’s not a myth. Most cars made in the United States maximize their fuel efficiency at about 55 miles per hour and drop off rapidly above that limit (this is actually from a study – West, B.H., R.N. McGill, J.W. Hodgson, S.S. Sluder, and D.E. Smith, Development and Verification of Light-Duty Modal Emissions and Fuel Consumption Values for Traffic Models, Oak Ridge National Laboratory, Oak Ridge, Tennessee, March 1999).

This means that if you’re tooling along on the interstate at the speed limit of 65 miles per hour and drop that back to 64 miles per hour, you’re actually improving your gas mileage by about 1.5%, according to fueleconomy.gov.

So, let’s work out what that’s really worth.

Let’s say you have a typical car that gets 25 miles per gallon at 55 miles per hour. At 65 miles per hour, it’s going to get roughly 15% worse gas mileage, or 21.25 miles per gallon. If you trim that back to 64 miles per hour, your gas mileage is a bit better – you’ll be getting 21.625 miles per gallon, more or less.

Now, let’s say you’re going on a 400 mile trip on the interstate and that gas is available for $3.25 a gallon.

If you go 65 miles per hour, it will take you 6 hours and 9 minutes to make the trip. You’ll burn through 18.82 gallons of gas, which will cost you $61.17.

If you go 64 miles per hour, it will take you 6 hours and 15 minutes to make the trip, six minutes longer. You’ll burn through 18.5 gallons of gas, which will cost you $60.13.

In short, driving one mile per hour slower will add six minutes to the trip and save you $1.04 in gas. Your savings simply by driving one mile per hour slower is $10.40 per hour. That, of course, is after-tax money.

That figure, as mentioned above, assumes a 25 mile per gallon car, but other mileages have similar savings. It also assumes that you’re slowing down a bit from a speed above 55 miles per hour.

So, should you just go 55 on any road you’re on? I wouldn’t do that. Instead, I’d stick to the posted speed limit and maybe go a mile an hour or two below that in the slower lane on an interstate.

Doing this serves three purposes. One, you’ll put cash in your pocket for the extra time you spent driving. Two, you’ll never get a speeding ticket. Three, you’re sticking more or less with the flow of traffic (going much slower would disrupt that), so you’re not disrupting traffic flow and endangering yourself that way.

The next time I’m rolling along some flat four lane road in southern Iowa, I’ll just set the cruise to a couple of miles per hour below the speed limit and roll along. Sure, I might get there five minutes later, but I know I won’t get pulled over for speeding, I’ve got something entertaining on the radio, and that bit of extra time will put a bit of money straight into my pocket.

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. The price of tea
2. Preemptive computer replacement
3. Retirement account confusion
4. Secret Santa thoughts
5. Infrared heaters
6. Investing in I-bonds
7. Children and television
8. Health and weight management insight
9. Goal savings when goal disappears
10. Theo with Cubs

On the Saturday evening before a timeshift, I’m usually quite diligent about going through our home and adjusting all of our clocks one hour or another. Then I go to bed, confident that tomorrow will go smoothly and we won’t miss anything that we’ve planned.

Inevitably, though, I’ll forget a clock somewhere in the house and at some key moment, I’ll look at that clock and assume it’s correct, causing me to miss out on something or another.

Q1: The price of tea
Is it cheaper to buy tea bags or use loose leaf tea? I can buy a box of 100 tea bags at Walmart for $1.00.
- Lisa

It really depends on what you’re buying. If you just want a mildly tea-infused drink and are really only interested in black tea, such discount tea bags are probably perfect for you. You’re going to have a hard time finding bulk black tea sold at such a price.

However, as a general rule of thumb, when you’re comparing identical teas and looking at bags versus loose leaf tea, the loose leaf tea will usually be a bit less expensive.

If you’re happy with the tea that those bags produce for you, then by all means keep buying it.

Q2: Preemptive computer replacement
With Black Friday deals fast approaching, my husband and I are trying to decide whether or not to replace our HP desktop. It’s about 5 years old and for at least a year or two of that we’ve kept it on all the time because it takes so long to boot up (I know this lessens it’s life and we’re trying to remember to shut down now). Besides the usual aging factors, like increased fan noise and the slow boot, it’s doing well. Our concern, however, is that it might not last another year and Black Friday is the best day to get a great deal on a new one.

We’re living on a small graduate stipend and minimal student loans plus a little bit of babysitting income. We use the desktop for movies, etc, since we don’t own a tv, and basic word processing. So we don’t have any particular high power needs, just something that has a monitor large enough to watch movies and that provides me with a computer when I’m home with the kids. In a perfect world, though, I’d love one of the all-in-ones since it’d mean less computer the kids can get to and mess with (the blue power button is a constant temptation to my toddler).

Any thoughts on preemptive replacement? We have the money for a Black Friday deal, but not for a full or typical sale price.
- Jenny

Although you might save a bit of money buying a computer on Black Friday, the honest truth is that entry-level home computers are so inexpensive at this point that the deals on Black Friday don’t blow away the day-to-day prices like they did several years ago. You can buy a very solid home computer for $300 that will meet the needs you describe any day, and over the last couple of years, there haven’t been huge discounts on such home computer units.

That’s not to say it’s a bad idea to replace the one you’ve got, nor is it a bad idea to check and see what’s available on Black Friday. However, if you don’t see anything that’s really exceptional, I wouldn’t buy. Instead, I’d just wait until I actually needed a replacement.

Regardless, you should have some kind of backup plan in place for your key documents. You don’t want to lose them, especially on an aging computer, and having such a backup will make a switch to a new computer that much easier.

Q3: Retirement account confusion
I am 26 years old and am trying to figure out retirement accounts. I am currently investing through my employer’s 401k which is with Wells Fargo. However, they are not currently offering any matching benefits at this time. Is there any reason why I should continue putting money into this account versus starting an IRA with another company like Vanguard or Fidelity? It seems that these offer more options for funds to invest in.
- Josh

I definitely agree with your plan of opening an IRA elsewhere. However, there are still reasons for keeping a regular 401(k).

The biggest reason is that the maximum amount you can contribute to an IRA of either kind (Roth or Traditional) is $5,000 or $6,000, depending on your age. If you’re wanting to contribute more than that to retirement, the 401(k) is most likely your best option.

Aside from that, you may find that there are better investment options in certain classes with the 401(k). It is never a bad thing to have more options available to you.

Q4: Secret Santa thoughts
What are your feelings on “Secret Santa” gift exchanges during the holidays? My office is doing one and my extended family is thinking about it too.
- Ron

The entire purpose of a “secret Santa” gift exchange in an environment like an office is to simply ensure that no one is left out (assuming they choose to participate) and that gifts are more or less equal and anonymized. Without this, it’s pretty easy for gift exchanges to create hurt feelings in an office environment, which can quickly turn poisonous.

That being said, if you’re resorting to such methods to preserve everyone’s feelings, why have an exchange at all?

My solution would be to do something fun with it, such as turning it into a game. I participate in one such exchange that’s done as a “yankee swap,” where everyone takes turns opening an item then has the ability to “swap” that item with one that’s already been opened.

Q5: Infrared heaters
Trent, would dearly love to see you write on the infrared heaters that are getting so popular. I’d love to get one but don’t want to spend the money if they aren’t worth it. I get confused in reading about all of them. Do they really cost a dollar a day to run?
- Millie

Infrared heaters seem popular mostly due to a large deal of advertising for the EdenPURE brand of heaters as well as the “Amish” heater.

These heaters can be inexpensive to run, but they’re really no different from any other space heater. They save money due to the principle of zone heating, in which you lower the overall temperature of your home and then use a space heater only in the room you’re in. This, of course, can be done with any space heater.

In fact, many of the popular “infrared” space heater models get pretty poor reviews from Consumer Reports.

If you want to try this tactic, get a lower cost space heater and use zone heating. That’s how you’ll save money.

Q6: Investing in I-bonds
I am 23, I have been working as an accountant for a Fortune 500 company for 5 months since graduation. I live on half of my after tax income, I have an emergency fund consisting of 8 months of expenses (in a high yield, online savings account), and next year I plan on putting $1,000 to my Roth every other month and a $1,000 the other months to save towards an engagement ring and a down payment on a house. Still will have an extra couple hundred, after taxes/10% contribution to a 401k, that will increase my e-fund and car fund.

I am risk averse and my idea is to put the short-term savings in I-Bonds to obtain a decent yield. Is that a prudent idea or is there somewhere else to put my money? I do not plan on buying a house for awhile because I have location volatility for the next 2-4 years. I have seen many co-workers lose money on homes, I love renting and will rent until I am in a more stable location.
- Will

Right now, I-bonds offer a 3.06% rate. However, to get that rate, you have to lock up the money for at least a year without any sort of option to cash them in. If you cash it in before the five year mark, you sacrifice three months worth of interest.

The reason you get a better rate on I-bonds than on bank CDs or savings accounts is because you are locking down the money very tightly. For the first year, they’re essentially not liquid at all, meaning you can’t tap them even if you wanted to. Even after that, the penalty for tapping them early is pretty stiff until you reach the five year mark. Not only that, the fixed rate on such bonds is really low. You do get some inflation support, but it’s not strong support.

I’d only consider such bonds if you’re planning on cashing them in at exactly the five year mark, as I’m pretty confident that at that point you’ll want to have your money in something else. I’d also make sure that you have plenty of money not locked way in such bonds.

Q7: Children and television
Do you let your children watch television? If so, how do you monitor and control it?
- Shelley

The only television our children are allowed to watch are programs that we’ve pre-recorded on our DVR. This lets us pre-screen the programs so we know what’s being recorded. If it’s not recorded, they don’t get to watch it.

Most of the stuff that’s recorded are PBS children’s programs like Sesame Street, although we record a few other family shows like Max & Ruby.

Our children average about twenty minutes of television a day, usually as a “wind down” before we start our real bedtime routine of teeth brushing and fish feeding and bedtime story reading. It’s usually a half hour program about two out of every three days or so.

Our only television is not in the room where most of the children’s toys are, so when they’re playing, there’s not even a television available to watch. The only television is in a room that’s largely filled with adult things, so it’s not really a room that they go into when they’re looking to have fun.

Q8: Health and weight management insights
I love reading your blog and find it the continuing source of encouragement I need to spur my family on to making better financial choices and making the small choices everyday to be more self-controlled with finances. I am wondering if you follow any blogs that would help me in the same way that the simple dollar has with money but in the area of health/weight management and overall fitness? There’s so many out there I just thought I’d ask for advice from someone who’s writing style and personal philosophies about deeper issues seem to connect well with me.
- Andrew

To be honest, I’ve never really clicked with any blog ever written about health and weight management issues.

I think the big reason is that, unlike personal finance, it’s often hard to demonstrate how something universally works in terms of weight loss and health. Money is an absolute thing – you can count the dollars and cents no matter what. Time management is another absolute thing.

Health and weight loss is not an absolute thing. In college, I had a roommate that was as thin as a rail, yet he ate amazing quantities of unhealthy food. I know people who look and feel best when they eat really carefully and others who look and feel best when they eat whatever they like. I know people who are healthy who are gym rats and others who would never enter a gym. Lots of people tell me that diet is the key, but I find over and over again that my activity and exercise level is the real key for me.

When I read personal finance and personal growth and time management blogs, I can relate and analogize those experiences to my life and use those tactics. When I read health and weight loss blogs, I can appreciate the story, but even the tactics that make sense may or may not work for me. Rather than being a helpful story, it’s just an inspiring one, and because of that I’ve never really found any that have clicked with me.

Q9: Goal savings when goal disappears
I’m interested in your thoughts on what to do with savings it turns out you don’t need for a specified goal. Let’s say I need a new lawn mower. I start saving up and have enough cash on hand to replace it. I then receive a perfectly functional used one from a family member. Should I move some/all of that saved money to apply towards other goals or just leave it there as someday (years out I’m hoping) I’ll need that new mower? I like the idea of having that money set aside in case something happens…but it could be used for something else now. Is the answer just to reprioritize goals, moving some money out of the mower fund for other things, setting a new mower goal date, and continuing to save as before? Perhaps the real question is, how do you save proactively for something that may not have a current goal date?
- Ron

If you have another goal that you’ve thought about, planned for, and are currently saving for, then it’s completely appropriate to take that saved money and apply it to your newer goal. All this is going to do is accelerate you toward something you really want and have planned for.

The reason for having a goal is so you know how to save for it. If the goal is more than ten years out, for example, you should be putting that money into stocks, not into a savings account. If you have a very short term goal, for example, you might want to throw all of your savings toward that goal for the next month or two.

One caveat, though. I’m not clear on whether you have any sort of an emergency fund or not. Everyone should have at least two months’ of living expenses just sitting there in a savings account for emergencies like the one you mention. If you don’t have an emergency fund, this savings should become your emergency fund before anything else.

Q10: Theo with Cubs
You’re a lifelong Cubs fan. How do you feel about the team’s new management?
- Elliott

I’m happy with it. I feel like the new owners of the Cubs (the Ricketts, who bought the Cubs a couple years back) are taking their time and building the team that they want in Chicago. Theo Epstein, more than anyone else in baseball, knows what it’s like to take over a team with a long history of choking in the postseason and build a winner.

For the first time in my lifetime (or at least since I became a more serious fan of baseball), I feel like the Chicago Cubs are taking steps to actually build a long-lasting contending team. They’ve had playoff runs before (1998, 2003, 2008), but each time I felt like they sacrificed the long term in a terrible way for the short term, often destroying the nucleus of something that could have been long-lasting to take a (failed) shot at winning that year. I just don’t think Theo Epstein works that way based on what I saw in Boston.

The only thing that worries me is how much of an impact Larry Lucchino (the Boston Red Sox president) had in Boston in terms of building those teams. How much of the credit does Theo really deserve? From all accounts, Theo deserves a lot of it, but did Lucchino curb some bad impulses and decisions? I guess we’ll find out.

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.

Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.

I’ll be the first to admit that personal finance workbooks never really clicked for me. I’ve tried reading and using a few of them over the years, but virtually every time, I felt like the forms and blanks within the book were constraining me and didn’t match what I wanted to do. I have always felt much better reading books until I understood the concepts, then doing things myself independently of the books.

Of course, such an attitude is a direct reflection of how my mind works. For other people – including a lot of readers of The Simple Dollar – workbooks are a great way to start going through the thought process of getting one’s finances in order. They do an excellent job of connecting the orderly process of one writer’s personal finance philosophy to a set of step-by-step tools for readers.

This, of course, brings me to David Bach’s Finish Rich Workbook. Bach has written a pile of books over the years, many of which I’ve reviewed (Smart Couples Finish Rich, Smart Women Finish Rich, and Start Late, Finish Rich, for starters) that all espouse the same general personal financie philosophy of cutting back on unnecessary expenditures and channeling that into long term financial goals. Yes, he’s the guy who came up with the much-debated “latte factor.”

Start the Journey to Living and Finishing Rich
The book starts off by checking to see what you know about your finances through a series of checklists. The items on these lists often push you toward expanding your knowledge in specific areas that you don’t have a good grasp of. For example, one entry says “I know whether my income would be protected by disability insurance should I (or my partner) become unable to work. If I have disability insurance, I know the amount of the coverage when the benefits would start, and whether they would be taxable. If I don’t have disability insurance, I know why I don’t.” If you’re unable to check that box, you’ve got a pretty clear conversation and thought starter right there.

Find Your Money
Here, Bach encourages people to essentially make their own net worth calculator by collecting together all of the things that they own (including financial accounts) and all off the debts that they have, then subtracting the debts from the assets. This is a very good thumbnail for seeing how your financial progress is going, particularly if you routinely calculate it and compare it to earlier results.

Create Your Purpose-Focused Financial Plan
I actually quite liked this section. The plan that Bach wants you to create starts off by you figuring out what the five things you value most in the world are, then assembling a goal related to each one that you want to achieve, then building your financial plan based on those five goals. For example, if I value education, I might have a goal of saving for half of my children’s college education, so how would I achieve that? I’d open a 529 (an immediate action), set up an automatic contribution, and watch it build over time.

Find Your Latte Factor
How do you pay for these financial goals? Bach’s solution is to dig through your life and look for ways where you’re spending money needlessly, then trim or eliminate them. The “latte factor,” of course, refers specifically to cutting out an expensive morning coffee, but that just scratches the surface of the idea. For many, this seems un-fun, but I tend to look at this as a challenge of sorts, seeking out things that I can cut without making life less enjoyable.

The Debt-Free Solution
Here, Bach encourages people to move toward a debt free life, which is a great financial goal for anyone to achieve. The plan is essentially a pretty standard debt repayment plan, but Bach does a pretty good job of walking a person through assembling a plan that works for them.

Pay Yourself First
So, you’ve got all of these goals and plans, but how are you going to make it work? One big tactic to use is to pay yourself first, meaning that you allocate money to these goals and plans right off the bat, then strive to make life work with what’s left over. This is a pretty strong strategy, as we often modify our lifestyle choices based on the cash available to us.

Create a Security Plan
Here, Bach delves into insurance issues, looking at things like life insurance, long term care insurance, and so on. These tools are there to make sure that all of your hard work doesn’t go for naught because of an unexpected event. Bach’s advice is largely good but occasionally delves into what I would consider unusual recommendations, so I would use this chapter as a jumping off point, not as a final answer.

Recapture Your Dreams
Here, Bach looks at the ins and outs of specific investments. How do you need to invest if you want a high return (with high risk, of course)? What about if you need a very safe investment that has a steady (but lower) return? Bach walks through savings accounts, bond investments, stock investments, and so on with the goal of matching specific investments to the goals you’ve set in the earlier chapters.

How to Hire a Financial Advisor
My advice is generally to not hire a financial advisor and figure out instead how to do things for yourself, but many people feel better hiring one anyway. This chapter largely serves as a research and interview guide for helping you to find an advisor that works well for you. The key piece of advice here is a home run: never delegate control of your money. Your advisor should never be able to make any financial moves without your explicit permission. Allowing such moves opens you up to be burnt badly.

Keep a FinishRich Journal
Bach’s final advice is to simply keep a journal describing your financial journey. Why do such a thing? Writing a journal entry makes you reflect on the things you’re writing about and helps you think about the journey ahead from where you’re at in a very intimate way. I’ve been an avid journaler of my whole life for many years and I find it very valuable for reflecting on my day just passed and the days ahead.

Is The Finish Rich Workbook Worth Reading?
This is a book that’s very strong in terms of holding your hand and walking you through each step, but it’s a little light on the depth of specific issues at times. If you’re looking for something that will help you get started, this is perfect. If you’re looking for something to answer all of your questions that you’ve ever had, this book will be a little light.

I would absolutely recommend this book to someone who works well with a guided environment… with one caveat. Some of the specifics in this book are a bit dated, as the most recent revision came out in 2003. The advice is still quite strong, but there are references to financial institutions that no longer exist and tax rules that have been superceded since 2003. A revision could be in order here. If it gets a revision, this book would get a thumbs-up as a solid beginner’s workbook from me. For now, it still gets a thumbs-up, but perhaps not a really strong one.

Check out additional reviews and notes of The Finish Rich Workbook on Amazon.com.