Updated on 02.15.16

Questions About Freeloaders, Disability Benefits, Self Employment and More!

Trent Hamm

Reader Mailbag

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. Balancing spousal 401(k) contributions
2. VA disability benefit questions
3. Paying bills with credit cards
4. Minimum amount for stock investing
5. Ten years too short?
6. Houseguests won’t use store brands
7. Value of vintage board game?
8. Paying cash for a house?
9. Walk away money
10. Drawbacks of self employment?
11. Frugal wedding versus expectations
12. Freeloading friend

One of the trickiest parts of writing responses to mailbag questions is “reading between the lines” of the stories that people share. Quite often, the information one needs to really decide what the best path is for that person isn’t part of what they share.

For instance, I recently received an email from a reader asking for help finding tax-free investments. Or, at least, that’s how I read the question at first. Later on, I read the question as though the reader was seeking help on evading taxes. After that… I honestly wasn’t sure.

Of course, part of that comes from filling in the blanks myself. I tend to assume that people are being honest when they write to me for advice and that their motivations are simply for their own financial improvement within normal legal and ethical parameters. However, not everyone has the same ethics that I do.

I also sometimes make assumptions about people’s lives. If they give indications of owning expensive items, I’ll assume that they have a job that pays well, for instance, when that isn’t always true.

Different people read different things between the lines, and that sometimes leads to different conclusions when it comes to advice.

It also explains why people should always use a financial advisor for tricky and complex questions.

Q1: Balancing spousal 401(k) contributions

I am getting set to start a new job on 16 Feb. Part of taking the new job was a 54% pay increase. This puts me at $135k/year. The company I’m going to is significantly smaller than my current company. One of the things that comes with a small company is limited retirement account options or a lack of low-cost index funds available. The new company has a 401(k) and a Roth 401(k) and no matching on either. My question is which one of these should I contribute to? Or both? I always have a hard time wrapping my head around what my income will be in retirement. Although I know the basics, I’m just not sure how to answer that. Either way, I intend to hit the contribution max ($18K) if it is only into the 401(k).

Other pertinent info: my wife makes ~$85k and has a pension, we have 529’s for each of our two daughters, I’ll have about $80k in a rollover IRA, and I have ~$40K in student loans that I just refinanced into a 2.18% 5-year variable and plan to pay $1K/month towards that in order to pay it off in 3 years or so.

Advice on how much to contribute to one or both of the 401(k)’s would be greatly appreciated.
– Jeremy

Assuming that the Roth 401(k) and the normal 401(k) have the same investment options, and also given your income level, I would lean toward contributing to the normal 401(k). The reason for that is that it is very likely that you will be paying a lower tax rate in retirement than you’re paying right now, so contributions to a normal 401(k) will end up saving you tax money over the long run.

The problem with such calls is that they all rely on predictions of what tax rates will be like in the future. I don’t believe tax rates can remain as low as they are for the long run.

You may also want to consider contributing to a normal IRA up to the contribution limit as well. An IRA would give you more investment options than the 401(k) would.

Q2: VA disability benefit questions

I am a 100% rated disabled by VA living in Texas. 1) I have a credit card charging 17% APR. Card was obtained after retirement by DoD and after VA rating. Is there any protections to lower the APR? 2) I am learning photography as a trade. Can I use either DoD or VA benefits to purchase needed equipment? Either through Voc Rehab or similar?
– Stephen

I don’t believe that you have any special protections to lower your interest rate on your credit cards. You can always call up the credit card company and negotiate a lower rate, but that’s never a guarantee.

As for funding photography as a self-employment business, which is probably the angle you’d want to go with, your local VA can fund such things to help you get started. Here’s a relevant document on the subject.

The challenge is convincing your local officials of the eventual profitability of your operation. What’s your plan for turning this into something profitable? Are you going to sell stock photography? Are you going to try to sell freelance images to publications? The more detailed your plan is, the better off you’ll be.

Q3: Paying bills with credit cards

Is it a good idea to pay the remaining amount for my phone and insurance using a credit card? I am currently paying both every month and I know I can afford them. I’m just after for the building my credit thing.
– Nina

You certainly can pay bills using your credit card and this will help you build credit to a certain extent.

However, there are a few catches. First, if you’re not paying off your balance in full each month, this is a terrible idea. You’re going to be putting yourself in a horrible financial state if you end up building up a credit card balance because of this.

Second, if this is causing you to push up against your credit card limit each month, it’s probably not actually helping your credit. Your credit score does well if you’re using some of your credit limit, but generally less than half of it. If you’re using most of it, it actually doesn’t help your credit.

Overall, unless you’re trying to rapidly rehabilitate your credit, I don’t think this strategy is worth it.

Q4: Minimum amount for stock investing

What’s the minimum to invest in income producing stocks? Or is there a minimum?
– Kerry

There isn’t a strict minimum needed to invest in stocks. However, if you’re investing small amounts, it’s going to be very hard to earn a profit.

Most brokerages charge you a fee to execute a trade of any kind. Let’s say that your brokerage charges you $10 per trade, for example. You have $100 to invest. So, to execute a “buy” trade, $10 of that goes to the brokerage and you only get $90 worth of stock. It grows to $110 – a 22% return. Then, you issue a “sell” trade and the brokerage takes $10. Right there, you’re back at the $100 you started with, even though your investment earns a 22% return.

This gets much better when you start working with larger amounts. If you have $1,000 to invest, you’ll end up buying $990 worth of stock, and you only have to have about a 2.2% return to get to $1,010. Above that, you’re actually making money.

Having said that, I think the best move is generally to buy into mutual funds directly from the investment house that manages them. For example, I invest with Vanguard, which charges no such fees. However, they do have a pretty high minimum to invest – $1,000 on a few funds, but $3,000 or more on most funds.

Q5: Ten years too short?

Do you think ten years is too short of a timeframe to invest in the stock market? I have been looking at the history of the stock market and you can point out a lot of ten year periods where stocks either just barely broke even or even lost value. You only seem to get into guaranteed gains when you look at time frames of 15 years or more.
– Tim

It is pretty rare to find a ten year period in which a diversified investment in the stock market (say, the S&P 500) loses money. You can sometimes find ten year periods in which the index itself roughly broke even, but those periods generally do not include dividends. If you include dividends, even the worst ten year periods are positive.

If you stretch it out to 15 years or more, you have a hard time finding periods where the returns were even that bad at all, especially when you include dividends.

The problem with stock investing, though, is that looking at all of this stuff amounts to examining past performance and past performance is not indicative of future returns. For future returns, you’re trusting either in specific companies or on the whole of American ingenuity and capitalism.

Q6: Houseguests won’t use store brands

My sister and her husband came to visit over Christmas. Everything was fine for a few days until my sister went looking for some toilet paper for the downstairs bathroom and found that we had a bunch of store brand toilet paper in the closet as well as a huge container of store brand hand soap that we use to refill our dispensers.

She came upstairs and got really upset with me about how we were being rude and mean to her as a guest in our home. She broke down in tears over it and said she never thought I would make her unwelcome.

I didn’t know how to respond to this because it seemed crazy and over the top to me so I just said that the stuff we bought is pretty much identical to the name brand stuff and it’s the same kind of stuff that hotels would use and she told me that if we wanted her to stay at a hotel that’s what she’d do.

This whole thing has troubled me. I don’t think I did a thing wrong by using store brand stuff or letting my guests use it. What do you think?
– Leah

Here’s the truth: your sister is being completely rude. There’s no way around it. Your sister is coming to your house and you are providing her with a clean room and a bathroom and toiletries at no cost to her. She has absolutely no right to complain about what you offer. If she wants name brands, then she should bring her own name brands.

Even if your use of store brands bothered her, it is almost disturbing that she would have the nerve to come to you and complain about it. “This free stuff you’re giving me is not up to the quality that I demand!” That’s just ridiculous.

Ignore your sister. She has a giant sense of entitlement that you don’t need to spend a second of your life worrying about. Keep using your store brands – they work find – and if she wants name brand hand soap and toilet paper next time, she can bring it herself.

Q7: Value of vintage board game?

I have a Fan Tan, Gin Rummy & Solitaire by Klondike Canfield game set in a leather box with initials on it, 1940’s time frame since it say “buy war savings bonds and stamps now” on the back of the instructions. Do you have any idea what it would be worth or where I could sell it? There was nothing like it on Ebay. It looks like all the pieces are there and is in good shape.
– Cammy

If I were you, I would take this item to a reputable antiques dealer and see what kind of value it might have. It may have value for collectors of World War II era memorabilia.

I don’t think most board game players who were not otherwise interested in vintage items would see any exceptional value there. The games enclosed can be played with an ordinary deck of playing cards and a few other components. The value is in the other details, such as the mention of war bonds.

I think the best place to find value for this item is with an antique dealer, especially one who specializes in World War II era items.

Q8: Paying cash for a house?

Let’s say you have enough in savings to fully pay for a house you’re thinking of buying. Do you think it is better to pay cash for that house or to get a mortgage for some portion of the house and keep some of that cash in savings?
– Thomas

Provided that you still have an emergency fund, I would have no qualms recommending that you pay cash for the entire house. There’s no reason to take out a mortgage and pay interest unless you need to do so.

How big should your emergency fund be? If you’re in good enough financial shape to be able to pay cash for a house, I’d recommend having two months of living expenses in an emergency fund plus an additional month of family living expenses for each additional dependent. After all, with more dependents comes a greater chance for crisis.

There is no reason to go into debt – even low interest debt – unless there’s a legitimate cause for it.

Q9: Walk away money

I’ve been reading your blog for many years and wanted to share a story. I’m 43 and have been saving for early retirement for many years. I was planning on retiring at about age 47 or so.

My company recently decided to downsize a bunch of people in my department, which essentially meant a lot more work for me. There were essentially 4 people doing what amounts to the same job and they eliminated two of those people which meant that for me and the other guy the work has doubled.

Thing is, training someone to do this job takes a long time. A year maybe. So I decide now is the time to ask for a raise because I’m going to be working like a madman. I got told “no.” So I went back to my desk, thought about it for about half an hour, then typed up a resignation letter, signed it, and brought it to my boss. He started sputtering and yelling and telling me how I wouldn’t work in this field again. I told him that’s fine, because I don’t plan to work in this field again.

Rather than letting me work through my month’s notice, I was then told to clean out my desk immediately and was escorted from the building. No big deal. I went home and decided I was going to take a month’s vacation and then start working on some other projects that will probably earn some money.

Three weeks into the vacation, I got a call from my company. The guy that fired me had been fired himself and they were offering me almost three times my original salary to come back and work for them in my old position. They also were going to hire two new people to bring us back to four. I accepted.

Turns out the guy who didn’t quit or get fired wound up getting promoted and is now in the same chair that my old boss was in and he actually understands what’s going on. The work environment is better than ever and I am making almost three times as much as before ($50K to about $135K). I am going to be able to retire for good in about three years if I want, but I’m actually really happy here right now.

Point of the story? Money in the bank means you don’t have to put up with nonsense at work. Companies push people around because they think their employees need the job and they’re usually right. If you are living paycheck to paycheck and have a high stress job you’re playing a fool’s game.
– Daniel

Your story is a perfect example of how life improves dramatically if you have plenty of money in savings.

Look at these four stories. Two of these people were outright fired, probably unexpectedly. If they were living paycheck to paycheck – as more than three quarters of Americans are – then they’re suddenly in crisis mode.

The other person suddenly found himself having to do the work of four people. It’s likely that this poor person was also living paycheck to paycheck and could not afford to quit. That person happened to get really lucky and see a good outcome, but in many environments that person would work and work and work while being handcuffed to the job.

The best solution for modern life is to be financially independent so you can afford to simply quit if the work environment becomes abusive and so you can easily handle it if your job is eliminated. Spend less than you earn. It’s the recipe for freedom.

Q10: Drawbacks of self employment?

As someone who has been self employed for many years, what do you see as some of the drawbacks of self employment? It seems great from the surface but there must be catches.
– Tammy

This honestly could be a lengthy article on its own – and it probably should be.

The biggest challenge of working from home is that you have to be self-disciplined. You no longer have any sort of supervisor breathing down your neck to get things done. You have to motivate yourself to get things done. You’re also at home, which is loaded with distractions and things to get done. You have to be very disciplined to make it work.

Another challenge is that, since you’re remote, many clients will find it very easy to let you go when it comes time to make cuts. You have to work for contracts and people on the other end of those contracts will sometimes be less than ethical. It can be a real minefield. Your best bet is to work with large organizations with an established reputation when possible.

I also find it challenging that many people in my life assume I’m always available because I work from home. They can call me and ask for favors any time of the day, assuming that I’m either not working or can easily flex my time elsewhere. That can be really frustrating at times.

It might seem like I’m painting a very negative picture of self-employment and contract work, but it does come with perks. It’s usually incredibly flexible in terms of when you actually do the work. You can usually work in your sweatpants and a t-shirt – it’s what I’m wearing right now and it’s really comfortable and warm. You can prioritize things however you like without anyone telling you how to prioritize. Those things are great. It’s just not all cherries and roses.

Q11: Frugal wedding versus expectations

My fiancé and I have decided to have a very inexpensive wedding. We’re having it at our home with a justice of the peace and a fairly small group of people present. I am not buying a special dress and have asked my three bridesmaids to just wear a dress they already have.

I have already received negative feedback about this from family and friends who are complaining that I am not making this day “special.” To me, the day is special because it’s the day I’m marrying my husband, not because I blew $20,000 on dresses and rings and flowers and food. I’d rather use that money for things that will actually matter in our life.

How do I handle this conversation? I realize we’re bucking expectations.
– Nora

It is your wedding. They are guests. Your wedding means you get to plan it. Their guest status means that they do not get to plan it. That’s how a wedding works.

The people offering comments are people who are substituting what they want for a wedding in for what you actually want for a wedding. They’re reflecting on what they want in their own wedding and wondering why your wedding is so different. It’s not matching expectations, and some people do not deal with that kind of expectation loss very well.

Just ignore them. Again, it’s your wedding. It is not their wedding. You can plan your wedding however you please. They can either come and be a happy guest or they can skip it – it’s their choice.

Q12: Freeloading friend

So I have this old friend who basically has started practically living at my apartment. She eats every meal here and has even started leaving a bag of her stuff in the corner because she crashes on the couch almost every night. She has her own apartment that she lives in by herself.

I think the deal is that she wants the companionship of a roommate and I don’t mind that. I am just getting frustrated that she is eating lots of food and using toiletries and such without paying for a dime of it.

How do I handle this tactfully?
– Amy

If I were you, I’d just ask your friend to pitch in when it comes to groceries or food ordering. The next time you’re planning a grocery list, just ask your friend to pitch in some cash.

How exactly do you say such a thing? Well, you make it clear that your food expenses have gone up since they’ve started hanging out there, and that’s fine except it’s making your monthly expenses more difficult and you need a hand.

If your friend objects to this, then it’s more of a reflection on your friend’s personality and true motivations than anything else. Any friend worth having around will happily contribute in this situation unless they’re in a financial situation where they can’t contribute, and that doesn’t sound like the case here.

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.

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