Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.
As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. Two different readers asked for suggestions on books on how to drastically cut their spending, so here are reviews of my three favorite books on frugality.
My review of America’s Cheapest Family
My review of The Complete Tightwad Gazette
My review of The Ultimate Cheapskate’s Road Map to True Riches
And now for some great reader questions!
My company is going to go public sometime in the next year. I really think [my company] is great and it’s going to do great business. All of the employees are getting some stock immediately at the IPO. I currently don’t own any stock in my company or anything else. When the company goes public, what should I do?
(I edited out the company name because I didn’t want any privacy to be blown to bits.)
I’d let the IPO happen, then sell some of the stock shortly afterwards simply to diversify yourself. Take the amount you sold, make sure the taxes are covered on it, and put most of that into a very diverse investment, like a total stock market index fund and perhaps even some into CDs or bonds.
The worst thing you could do is bet that your IPO will be another Google. Big skyrocket IPOs like that are pretty rare. You’re better off getting diversified pretty quickly after the IPO, even if it takes off on the first day. Remember Enron? It took off like a shot and looked like a steamroller for a while. Then this happened.
Don’t let even a chance of that happen to you. Diversify most of what you’ve got in that company (but you don’t have to sell it all, especially if you believe in the company).
What have you been reading lately?
As I write this, I’m currently reading The Demon Haunted World: Science as a Candle in the Dark by Carl Sagan. Before that, my last ten books read (as best I can recall) excluding books for review on The Simple Dollar were:
The Brief Wondrous Life of Oscar Wao by Junot Diaz
The Price of Privilege by Madeline Levine
The Invention of Hugo Cabret by Brian Selznick
The Long Tail by Chris Anderson
Watchmen by Alan Moore and Dave Gibbons
The Revolution: A Manifesto by Ron Paul
A Tree Grows in Brooklyn by Betty Smith
Animal, Vegetable, Miracle by Barbara Kingsolver
The Road by Cormac McCarthy
The Worst Hard Time by Timothy Egan
The top one on the list (by Diaz) was the best one, I think – an amazing book.
This list reaches back to early summer. I tend to read less during the summer, when the sun comes up at 5 AM and goes down at 9 PM. I’d rather be outside.
You imply that, if [a person] continues to save $2,500 a month, within fifteen years he would be able to drop out of the rat race. Is that really possible?
If you do nothing but hold onto those savings as cash, it adds up to $300,000 in cash. But, on the other hand, if you saved it at, say, 5% annual return, you end up with somewhere around $700,000 in savings.
Now, let’s say you choose to live on 4% of your savings (if it’s getting 5% return, it’s still growing). That’s $28,000 a year to live on – $2,300 a month. And it’ll grow slowly over time. You could easily live on that, especially if you were already accustomed to living frugally (and you would be, socking away $2,500 a month) and you weren’t idle with the time you previously used to work – meaning, you did something productive with your time instead of just idling and spending money.
So, yes, if you lived frugally and socked away $2,500 a month, you could walk away and have your own living stipend in fifteen years, quite easily. You might wonder about inflation, but if you get cost of living increases at work and those cost of living increases were reflected in the saving, so that’s accounted for, too, more or less.
You advise to “link to sites with roughly 1.5 to 2 times as many subscribers as you have. You should also talk to other bloggers that are even more popular in your genre.”
I’m new to blogging and I wonder how you find these sites – ones that are somewhat more popular.
You find them by simply reading as many blogs as you can in your genre. You’ll eventually begin to gather the relative popularity of other blogs from the number of comments in a week, the diversity of comments, and the number of times you see that blog mentioned in other blogs in the genre.
You should also look at traffic numbers and compare them to your own. Look for ones that report actual numbers, like the SiteMeter logo on a blog, and don’t put much weight in stuff like Quantcast or Comscore, which is based on weird statistical models that don’t often give a great idea of relative popularity of smaller sites.
You ever heard of a Green Dot Card? Is getting one a smart way to handle your spending habits? I’m looking into getting one but not sure if there are any monthly or yearly fees. What do you think?
I’d never heard of a “green dot card” until I received this email, so I did some searching. It turns out that it’s a prepaid Visa or Mastercard, which could itself be a decent way to help you control spending. But then there’s the catch – a $4.95 a month maintenance fee? That’s $60 a year.
Instead of using something like this, open up a basic free checking account at your local bank with a Visa or Mastercard tied to the account and no maintenance fees. You get almost all the same protections as a “green dot card” without having to pay $60 a month in maintenance fees for the privilege.
What’s your feeling on “charity” gifts – meaning instead of giving someone a gift, you give them a card saying you donated some amount to that charity in their name?
Personally, I don’t mind them at all, and I’d be happy to receive one. I would expect, though, that if I received one in a gift exchange with a $20 limit, the giver would actually spend that limit (or even a bit more, since the contribution would be tax deductible for the giver).
Having said that, I wouldn’t necessarily give everyone such a gift without some consideration. Before I would give such a gift, I’d want to know more about the person and I’d probably make an effort to choose a charity in line with their values and beliefs. For example, giving an atheist a “charity gift” to the Christian Children’s Fund could be insulting, as would be giving a vegan a “charity gift” to Heifer International. Those are rather strong examples, but it shows why you should think about it a bit.
Just talk about it with your friends and family sometime. See how they really feel about these gifts. Some people will appreciate them, some won’t.
Trent, where did you get that figure about having 1.2 times your salary by age 30 as a retirement savings benchmark?
It’s a thumbnail sketch based on Money Magazine’s retirement benchmarks from their April 2007 issue:
Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have…
1.6 times your salary in savings at age 35
3.5 times your salary in savings at age 40
5.8 times your salary in savings at age 45
8.5 times your salary in savings at age 50
11.9 times your salary in savings at age 55
16.0 times your salary in savings at age 60
Let’s say this scale assumes you start working at age 22. If you have zero savings then and need to have 1.6 times your salary at age 35, you can figure a lot of possible targets for age 30. A 1.2 target is definitely on the safe side, so it’s often the one I suggest. You’re far better off being ahead of pace at age thirty before the big expenses of marriage, buying a home, children, and so on can stack on you during your thirties and forties.
I enjoy your posts about food shopping choices and I’d like to know what a typical week’s worth of meals at your house is like. What do you eat?
There really is no “typical” week of eating around here. However, most weeks include the following elements:
- Most weekday breakfasts are very simple: cereal or oatmeal.
- Many weekend breakfasts are also simple, but once every two weeks or so we’ll cook something complex, like a frittata or waffles or a quiche.
- Most lunches (both weekday and weekend) are leftovers.
- A few breakfasts and lunches are things like burritos and breakfast biscuits that we make in big batches in advance.
- For dinner, we have homemade pizza one night a week.
- We usually have spaghetti one night a week as well with a simple homemade sauce.
- Roughly two nights a week, we have a complex homemade meal. This past week, we made beef Burgundy and spanakopita, both from scratch.
- The other three nights usually involve a mix of meals: crock pot stews and roasts, meat and vegetables on the grill, a simple stir fry, casseroles, and so on.
- We eat out once every two or three weeks at most.
That pretty much sums it up. Most of our ingredients tend towards healthier but more expensive choices, like free range chickens and eggs and hormone-free non-homogenized milk.
I’m following Dave Ramsey’s Money Makeover plan and he suggests having a $1,000 emergency fund before you start paying off debts. Now that I have the $1,000 fund, I don’t think it’s big enough. It wouldn’t help my family get through if I lost my job, and the economy worries me. Should I have a bigger emergency fund or should I stick with Dave’s plan?
Don’t let Dave’s guidance deter you here. If you feel more comfortable having an emergency fund that’s bigger than the $1,000 Dave suggests, build up that emergency fund.
I struggled with this very problem when I started turning my financial life around. My solution was to make a pretty sizable payment each month automatically into the emergency fund, and I still do it to this day. It makes for a very large emergency fund, of course, but that fund makes me feel secure about things like job loss, career change, and so on.
Go ahead and boost that emergency fund some more. It’ll make you more secure and help you sleep better at night.
You mentioned a while back that you liked an occasional mixed drink. What are your favorite drinks?
I like most mixed drinks, provided they’re made with quality ingredients. I’d rather not waste my time with inexpensive liquor. It often smells like turpentine, tastes rough, and is loaded with congeners, which cause hangovers. Give me a glass of water instead, please.
I also generally prefer simple mixed drinks – rum and Cokes, gin and tonics, and scotch on the rocks are probably my three favorites (room-temperature scotch melts some of the ice, creating a cool scotch and water).
I usually drink one as a night cap with guests or occasionally with my wife, perhaps once a week. It can be a tasty, pleasant way to end an evening.
Got any questions? Ask them in the comments and I’ll use them in future mailbags.