Questions about Home Buying, Windfalls, Icebreakers, and Diapers

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. Mechanical Turk to blog migration
2. Music for focused work
3. Costco, Sam’s Club, or BJ’s?
4. Investing advice for teens
5. Cheap lunches at work
6. Financial formulas
7. Home buying advice
8. Money saving in college
9. Divorce advice
10. Handling windfall in challenging life
11. Courage for plumbing
12. Icebreaker idea
13. Budgeting versus lifestyle inflation
14. Diaper advice
15. Book box swap

Few things in life make me happier than seeing someone I’ve known for a long time make some positive life changes.

I have a close friend that has lost a bunch of weight recently, mostly due to dietary self-control. I have a friend from my high school days that recently adopted a child that really needed a steady father in her life. I have another friend who has recently made an incredibly hard career choice, and yet another friend who has made the choice to exit an abusive relationship.

Every single one of them made a hard choice. Every single one of them is improving their life because of it.

Kudos to all four of you.

Q1: Mechanical Turk to blog migration

I read your review on Mechanical Turk. Thanks for the time you took to do it. I am on the fence about it right now, but I wanted to ask about your comment regarding having your own blog and earning money. I have started that process and have my site in place and I am building content, but any pointers will be gladly accepted.
– Melanie

Not too long ago, I wrote a detailed primer on starting a blog as a side business, which should provide a great guide for getting started with your own blog.

If you’re comparing using Mechanical Turk to a blog in terms of earning income, the biggest difference is that the ceiling for income is much higher with a blog, but it requires a long-term steady commitment through a long period where you won’t make much at all.

If you are happy just spending an hour or two every once in a while earning a few dollars while halfway paying attention to whatever is on television, Mechanical Turk is perfect. If you want to build something that can eventually earn a fair amount of money each month, but will require focused attention and effort on almost a daily basis, then a blog is better.

Q2: Music for focused work

I loved your recent article on free online music services. I am looking for a good free source for music to listen to while writing. I don’t like silence while I work, but deep lyrics and podcasts and radio are too distracting but I don’t like techno either. Any suggestions?
– Eric

Classical music immediately comes to mind. I often listen to Simone Dinnerstein’s playing of Bach’s Goldberg Variations while I’m writing, as well as other classical music. Look for anything by Mozart, the three B’s (Bach, Brahms, Beethoven), or The Five (Mily Balakirev, César Cui, Modest Mussorgsky, Nikolai Rimsky-Korsakov and Alexander Borodin).

Another great option is jazz music. Anything by Miles Davis or Thelonious Monk will be good to focus with. Monk’s album Criss Cross is a great one to sample.

Although it’s electronic, I have found the soundtrack to The Social Network by Trent Reznor and Atticus Ross to be great music to write to, whether I’m writing words or computer code. I’ve deeply enjoyed it lately.

Q3: Costco, Sam’s Club, or BJ’s?

I live fairly near three different warehouse clubs (Costco, Sam’s Club, and BJ’s). They’re all almost the same distance from me. I am interested in joining one to save money on bulk purchases but how do I figure out which one to use? Should I just visit each one? I don’t care about “corporate ethics” or anything because I figure most large companies do unethical stuff and some are just better at hiding it.
– Adam

Honestly, all three of them are pretty good in terms of prices. I’ve never shopped at a BJ’s, but I’ve visited both Costco and Sam’s Club many times and found their selection and prices to be reasonably comparable. Sam’s Club store brand prices are lower, but my experiences and Consumer Reports reviews seem to indicate that the Costco store brand products are a little better.

If I were in your shoes, I’d just honestly evaluate the stores in terms of personal convenience. Pick the one that’s most convenient for you, then stop in there and check it out (they’ll let you look around for free or give you a one-day membership). I’d suggest coming in with a list of items you’d buy there along with what they cost at your normal grocer so you can compare.

(I do like your perspective on corporate ethics. While I do think some companies actually behave better than others, I agree with you that public perception has a lot to do with how good the companies are at PR.)

Q4: Investing advice for teens

My question revolves around my 16 year old son. He got his first job this summer as a lifeguard and is working a lot and really enjoying it.

He and I have talked a lot about the value of saving and investing starting at a young age. We were wondering what his options were in terms of putting some of his money into a retirement fund or some other investment where his money can start to earn for him at an early age. He currently has a savings account and some CD’s, but would like to explore mutal funds or something similar. Do you have any advice for him?
– Stephen

Your son can easily open up a Roth IRA if he has an income. If he wants to put aside a little bit for retirement, that’s probably his best option. He also might want to consider a 529 college savings plan, but his window of opportunity to get great returns there has probably already passed.

I personally have a Roth IRA through Vanguard. I like their investment philosophies and how they do business and I’ve been happy with my returns there.

The nice thing about investing for retirement right now is that he’ll have at least 50 years for his money to grow. If he invests $1 right now and it earns a 7% annual return (as stocks are projected to do over the long term), that $1 will be worth $29.46 when he retires.

He skips out on a can of soda today and he helps take care of himself when he’s old. Sounds good to me.

Q5: Cheap lunches at work

The biggest reason that I buy lunches at work is that I simply forget to take leftovers in the morning. Mornings are crazy enough as it is and at least a day or two a week I just forget the leftovers so I buy something at work.
– Andrew

The solution is to keep some lunch options at the workplace. If you have a desk, this can work really well.

One solution that I used to use was to take in a bunch of different kinds of soups, along with a big bowl and a bag of crackers. Whenever I didn’t have a lunch on hand, I’d just make a soup instead.

I kept a wide variety of soups in my desk and would eat a second one mid-afternoon if I found myself hungry again. A container of soup was always less expensive than eating out – and much faster, too.

Q6: Financial formulas

I just read this Time article that featured a bunch of mathematical formulas that are supposed to lead to financial security and retirement. Do they really work?
– Moses

I believe Moses was referring to this Time article, but I’m not sure.

Anyway, the article includes this doozy of an equation, among others:

(Monthly Spending – Expected Monthly S.S./Pension) x 200 = Target Retirement

The problem with one-stop formulas is that they are usually padded with tons of assumptions about lifestyle, inflation, and many other things.

The one thing they’re good for is that they do encourage people to save, because they often paint a bleak picture of the future if you don’t save at all. Plug bad numbers into that equation and it’s pretty scary.

Q7: Home buying advice

I have been thinking about buying a house for a few years (as in I check real estate daily to learn the market and see the homes even though I know I can’t buy now- somewhat obsessed), and have been saving with the goal to buy around a year from now (summer 2015, I am told that summer is a good time to buy because that is when the most options are on the market). For saving purposes, the longer I wait the better… currently I am renting with a roommate for $1200/mo, which is well below my means and enables me to save around $1500/mo toward a house (in addition to healthy retirement savings, I am maxing both my Roth IRA and 401k this year and have a good chunk saved already). My question is: I am a very logical person and it does not escape me that if I am able to rent so cheaply, it is probably not a good decision to buy. The factors that complicate this are more emotionally/preference based… on paper I think anyone would say to keep renting. I have tried the NYT rent vs. buy calculator and it clearly says rent, but there is also the additional factor that I would buy a 2 BR place and rent the other bedroom, which isn’t part of the calculations and I don’t know how to figure that in. I also probably over-value my home as more than just shelter- I love to decorate and would love to have a place of my own to be able to invest in and make my own, even if this means the “investment” is more of a break even or returns less than the market.

Here are some stats to give you the full picture:
– I make $120k, with a potential bonus 15-34% of that, paid annually in spring. It is not guaranteed but I have gotten in every year for the last 5, so I consider it cushion but don’t plan on it. It is taxed heavily, around 45%.
– I have $120k in retirement savings, from 2014 on adding $23k/yr to max both roth IRA and 401k (p.s. is this overdoing it? i anticipate being ineligible for a roth ira in a few years with 3% annual raises, and bonuses, as a single person)
– I am 29
– I live in Chicago, where 2br condos/townhomes in my desired neighborhood are $450-maybe $550k, taxes vary quite a bit in that range, from $6-10k annually but I would try to get the lower end.
– I would rent the extra bedroom to my sister (who I can count on for at least a year or two) for around $1000/mo. The going rate is more like $1200 for rooms in these condos (like where I live now) so if I were to get a craigslist roommate, I could actually charge slightly more, I just know my sister cant afford it and would prefer her. I anticipate marrying/starting a family in maybe 5 years so they extra bedroom would be a guest room or kids room at some point when I drop the roommate and add a spouse (assuming at this point their income would more than cover the lost rental $.)
– I currently have $72k saved for the house, 20% of which is in a money market, and the $1500 I add monthly is being added to the money market for more liquidity/stability and so I don’t get hit with <1yr investment taxes when I do pull the money out to buy. (p.s. this somewhat kills me to not earn anything on this but I feel like it's the smart/safe move?)
- My grandma has offered $30k if I buy, although her memory is iffy and she has modified amounts on similar deals to my siblings in the past... so I maybe want to count on $15-20. My parents will also contribute $10k which I am mentally earmarking for closing costs- am told that is around what they cost in Chicago which is very high. There are no strings attached with either of these, my family is just old school and thinks everyone should own a home.
- My current lease starts being month to month in January 2015 which gives me some nice flexibility on when I could move if the right place were to pop up, but I could also stay indefinitely (if they keep me- the month to month w/ 45 day notice does go both ways but I don't see any reason for change on my landlords end as well).
- I have zero other debt- don't own a car and don't forseeably need one here. I don't love my job but it is stable.
- not much in the way of an emergency fund, have $1500 in an account but plan to spend that on a trip to south america in January, but I feel like I could build that back up pretty easily. My health is great, I have good insurance, and my family is there if something catastrophic were to happen.

My math says that I can afford this hypothetical scenario- is this right? Am I missing something?
(a home like this, for example- tons of these on the market)
Cost: $525,000
HOA: $101/mo
Taxes: $800/yr
Mortgage rate: 4.125% (I have excellent credit so assuming a best case scenario with the rate)
I would put down 20%, or $105,000

That would put my total monthly cost at $2805, which with a roommate at $1000-1200, I can afford $1800 by myself (since I will no longer be saving $1500/mo toward a house, so I think that’s doable even though more than my current $1200).

I looked at buying a (less expensive) place a few years ago and I got very cold feet- it seems like such a big decision for a single person, but I am almost 30 and feel like I’m sick of moving every year and living with increasingly younger than me roommates (most people my age live alone if single, but I don’t like living alone)- buying would give me the power to select my roommate and also feel more “adult”. (Not feeling external pressure on this, more so coming from myself.) The downsides to buying for me would be:
– less job flexibility if something more fun came up but that paid less (although I don’t think I have it in me to take a massive pay cut regardless- I feel like I’d rather do something I somewhat like that affords me the discretionary money to travel and do things I do love with no worry…) My main gripe with my current job is that I don’t see tons of room for growth if I stay in this city, but this is where I want to live, so I am somewhat capped. There aren’t many companies in my industry here at all so I don’t really have options outside of my company- it could happen but it would be a needle in a haystack situation- they are very small firms that have little to no turnover.)
– I am constantly drawn to entrepreneurial ideas, and could forsee that as a potential career path in the future, but I have no idea how to start. If I were to do that, I would probably use the down payment $ as my start up money. I just don’t see myself making that big leap until I am married and have a spouse to rely on for consistent income while I take a gamble… and that might be a while.

Another related question- I know you’ve said count on 1% of a homes value in annual maintenance- is this the same for condos or townhouses? I would think maybe less since some of those “home” things (like roofing, etc) would be covered by HOA? $5000 a year seems so high on a place like the one above that is very new and not that big.
– Carrie

The picture you’re describing is of someone trying to make a case for buying a home for emotional reasons, not financial ones. Even with a steady renter who is a perfect roommate, it is still going to be a financial challenge for you. If you have a renter who is a challenge or can’t find one that fits, you are going to be really struggling.

That “rent versus buy” calculator you mentioned is pretty accurate. If it points you strongly toward “rent,” I would really follow that calculator’s advice. You’ll be miserable if you push too hard against it.

As you mentioned with the townhouse, some of the costs are usually covered by the HOA, but then you also have to pay HOA membership fees, which are essentially part of that 1%.

Q8: Money saving in college

You were pretty frugal in college (by need, it sounds like). What kind of things did you do to save money there? Got any smart tips?
– Kevin

I did lots of little things. I went to a lot of club meetings on campus to get free meals (I ate a lot of free pizza in my college years). I bought only used textbooks and sold almost all of them at the end of semesters to help pay for the next ones. I even switched classes a few times because of textbook and material cost. I worked at an on-campus job so that I never needed a car.

There wasn’t any big strategy I used to save money, really. I was just careful with every single financial transaction, whether it was clothes, food, housing, energy, or anything else.

The only real mistake I made was poorly planning for my degree, causing me to spend more time in school than I really should have, which resulted in more student loans than I wanted.

Q9: Divorce advice

My husband and I are no longer on speaking terms. We still live in the same house but a divorce is obviously imminent. What can I do to put myself in the best shape for divorce?
– Carolyn

Although I couldn’t find it, I’m pretty sure I’ve pointed to this great article before, which outlines nine things people should do when preparing for divorce (the title says “women,” but I think almost all of it applies to both women and men).

The most important thing, in my opinion, is to figure out whether or not the marriage is salvageable. Could counseling help? Marriage is hard work and it’s never easy. Sometimes a little helping hand can make a big difference.

Communication is the key to any relationship, particularly marriage. If you’re not talking, you’re mutually choosing to cause the marriage to wither. You need to talk.

Q10: Handling windfall in challenging life

I am 36 years old, in a common law relationship with plans to get married, employed and have no debt. I currently am putting 10% of my take-home pay into a retirement account, and my partner and I use a cash jar system to fund joint expenses, vacations, emergency fund and other needs. I feel like we are doing very well.

I am about to inherit a sum of money from my grandparents which almost exactly equals the unused contribution room I have in my retirement account. I am not sure if simply putting this inheritance money in there is the best thing to do or not. Some details which are factoring into my thinking:

- I don’t see an urgent need for this money for other things. The wedding we are planning will be extremely small (immediate family only) and we can afford it. We do plan to have a child in the next year or so, and we may need some money for that. But we are saving for that and I think we should be okay. But you never know…

- My partner has a very good pension through his job, but he also has a chronic health condition which makes it likely I will outlive him, so he encourages me to make sure I have my own retirement investments. I started my RRSP a few years late because I didn’t have a good job and I had a student loan, but currently have $25,000 in there and am saving 10% of my take-home pay.

- We currently rent, and have no plans to buy a house. We live in a very overheated real estate market and financially, we both feel we are better off renting because our expenses are very predictable and we can plan for investments and other spending. If we did change our minds, then it is possible to withdraw money from the RRSP to pay for a house with no penalty under a special government plan. I do not plan on changing my mind, but the option is there.

So, what should I do with it? My instinct is to take $1000 and make some small life improvements (I need a new computer, for instance) and perhaps enjoy a vacation in Grandpa’s honour, then to put most of it in the retirement account and maybe save a bit as a slush fund for unexpected baby needs. But given we have a good emergency fund and are excellent savers, maybe I should just put all of it into the RRSP. Or is there something better than a retirement account that will give me more return on this money?
– Helen

Given your financial situation overall, I’d probably follow your instinct. Use $1,000 or so for small life improvements, keep aside a little for baby needs, and put the rest into retirement.

Trust me – you will have unexpected expenses due to your baby. You’ll find yourself spending money in ways you never thought you would. Having a “slush fund” will help with the transition.

As for the $1,000, that’s really your call. Assuming that your inheritance is about $25,000 – which is hinted in the email – it’s not a huge deal to spend 4% of that on personal things.

Q11: Courage for plumbing

Our kitchen faucet leaks horribly and is starting to drip under the sink. I would normally call a plumber to fix it but I am trying to build up the courage to try it myself. Give me courage!
– Erin

Trust me, you can do this. Both Sarah and I have replaced faucets by ourselves. It’s really not hard at all.

This Youtube video is a great visual walkthrough of the project and this is a great written walkthrough of how to replace a faucet.

Just turn off the water before you start and when you think you’re done, flip it back on and see what happens. If it’s fine, you’re done! If it’s not right, turn off the water and figure out how to fix it.

You pretty much can’t mess this up bad enough that a plumber couldn’t rescue you as long as you keep the water turned off.

Q12: Icebreaker idea

you’re not there yet, but when you have teenagers, here’s a great idea for an icebreaker – esp when a young man comes to pick up your daughter for a date. keep a jigsaw puzzle going on a card table in the living room or family room. it’s a nice way to interact without having a face to face awkward discussion. anyone can participate. it’s cheap/free. and it’s fun. Keeping one going all the time is also a nice way for a child to chat with a parent about an awkward subject since you’re close to each other but not having to maintain eye contact.
– James

My father actually did the exact same thing during the winter months, so that friends of his children would have something to do that wouldn’t involve holding eye contact. It worked pretty well.

During the summer, he would enlist people who showed up to do garden work. Seriously. I remember one summer watering the garden with a friend of mine who wondered what he had gotten himself into.

It’s always a good idea to have a nice icebreaker around, especially if you have kids.

Q13: Budgeting versus lifestyle inflation

Here’s our situation:

- I am 27, my wife is 25
– We are completely debt free
– We live in an apartment that’s fine for us now but won’t be if we have children
– We want to have children in 1-3 years

I just got a new job that pays about 50% more than I was previously making, raising our household income by about 30%. My wife and I have been budgeting carefully since getting married and we decided to just keep our current budget in place and ramp up the savings for a home and for retirement.

Makes sense, right? But how do we keep lifestyle inflation at bay? We’re already tempted to buy stuff that we know we can afford now that was questionable before like an iPad for each of us.
– Vince

There aren’t any complete solutions, but there are several things you can do that can really help.

First, make your savings automatic. Set up an automatic savings plan that just moves the money you want to save to your savings account each month automatically. Even better, have that savings at another bank so it’s harder to tap it on a whim.

Second, adjust a little, but not a lot. Your income went up by 30%? Add 10% to some of your budget lines, like food and entertainment. Or even 15%. Keep the rest as they are. This will cause your savings to still go up by a big amount overall.

Finally, just be mindful of the change. Recognize when you’re tempted by lifestyle inflation. Ask yourself if you really need that stuff.

Q14: Diaper advice

My wife and I live in Nebraska with our two children that are 2 and almost 4. We are trying to get out of debt but find that the children cost a lot of money, especially on disposable diapers for two children. Do you have any recommendations on how we could save money on diapers? My wife will not use cloth diapers. What diaper brands are the best to buy? Can they be reused in any way?
– Shawn

At that age, cloth diapering isn’t a cost-effective solution, as good cloth diapers cost quite a bit. Your children should be in the process of migrating out of diapers, especially the older one. (If you had younger children, I would suggest cloth diapers.)

If I were you, I’d focus energy on potty training at this point. Have them encourage each other to use the potty and set up a reward system to convince them to use it regularly. Use positive encouragement all the time.

It won’t be long before diapers are a complete non-issue.

Q15: Book box swap

My three closest friends and I are all avid readers, so we came up with a really good idea that’s saving all of us money. Since we all have bookshelves overstuffed with books we won’t probably read again, we each got out three boxes (all the same size) and filled them up with books. Then, we got together and gave those boxes to each other, so each of us gave three boxes and received three.

I now have a mountain of new books to read and I know that a lot of my old favorites are now in the homes of my friends. Some of these books aren’t really my thing but so many of them are! I have enough to read for a whole year and it cost me nothing!
– Karen

This is a really awesome idea for avid readers!

The best part? As you go through those boxes of books, you know that you’ll have a friend to talk to about these books. It will probably cement your friendships, too.

This is such a brilliant idea. I’m going to have to try it myself. I know a few people who would do this, I think.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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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