Reader Mailbag #57

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. Several readers have asked for suggestions on stock investing. Here are three excellent books on the topic (links go to my reviews):
A Random Walk Down Wall Street by Burton Malkiel
The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf
The Little Book of Common Sense Investing by John Bogle

And now, some great reader questions!

I recently heard an auto expert say that it is no long environmentally responsible or even necessary to change your car’s oil every 3000 miles. He said to cut costs and still maintain your vehicle, 5000 miles between oil changes should be sufficient. What are your thoughts?
- Jessica

In general, newer cars are designed to work best with oil changes every 5,000 miles, not every 3,000 miles. For example, my first car, a Buick Skyhawk of some mid-1980s vintage, required oil changes every 3,000 miles on the dot or else you could easily notice the car not running as well – in fact, I often noticed things going downhill a bit around the 2,500 mile mark.

On the other hand, most automobiles made since 2000 operate quite well with oil changes every 5,000 miles. The engines are simply made differently than they used to be.

My advice? When you get a car, consult the manual and follow the advice given there. If you own a newer car, you’ll note that it likely encourages you to get changes every 5,000 miles instead of the old 3,000 mile standard.

You’ve been doing reader mailbags for more than a year now. Aren’t you running out of questions?
- Michael

Not at all, actually. I have more questions than I can possibly answer.

In a given week, I usually get fifteen or so usable questions from the weekly Reader Mailbag thread and twenty five or so are emailed to me. I filter these pretty carefully, cutting the number down to fifteen or so usable questions. I then use ten of these (pretty much at random) in the reader mailbag and either use the rest for standalone posts or save them for a future date when I need reader mailbag questions. I have literally hundreds in the archive at this point.

So, no, I’m not running out of questions. In fact, I have plenty of material to keep the reader mailbag going for a long time.

I recently sent my financial advisor an email about logging into my account view. (Side note: I have a financial advisor due to my grandmother investing in mutual funds for me since I was born, and they also have set up a Roth IRA for me.) I got a response back that kind of surprised me: “I’m going to ask my assistant, C_____, to help you with the XXXXXX Account View, then let’s talk about making some changes to get more conservative – less stocks! more bonds, cash, currencies, hedges against the downside!

My gut reaction is that it’s a little too late to hedge against the downside, and if anything, I have 35 years until retirement so it’s way too soon to get conservative. What do you think of her response?
- Hillarie

My guess would be that the advisor made that comment without properly reviewing who you are. Most likely, many of her clients are much closer to retirement age than you are and thus going more conservative might make more sense for some of them. Thus, (s)he just popped out the easy answer without thinking too much about it. Another great sign of this is the fact that the advisor is tossing your case to his/her assistant – she doesn’t want to think about it.

This is part of the problem with hiring financial advisors, particularly ones you don’t interact with face to face. In my opinion, if you’re only interacting online with an advisor, you can do it yourself without their help. You can set up your own Roth IRA. You can do your own basic investments. Investment and financial advisors really only help if they’re fee-only (meaning they’re not trying to sell you something) and they’re helping you resolve a complex situation.

My advice, Hillarie, is to take advantage of the online tools available to you, as well as all of the sources of learning available, and take control of your own financial management.

I just recently got an iTouch as a present. What apps and features do you like and use the most on yours?
- Nicole

It’s probably easiest to simply list what’s found on my home screen. On the bottom row (the home row that appears on every screen), I have RtM, Evernote, Calendar, and Safari. The rest of my home screen is composed of Facebook, Twitterific, TWC (The Weather Channel), Instapaper, Kindle, Grocery IQ, Analytics, Nike + iPod, Bloomberg, USA Today, NYTimes, Wikiamo (a Wikipedia reader), Weightbot, and iReddit.

In other words, I use my iPod Touch basically as a PDA and not as a music/media player. All of the stuff on my home screen is essentially for information gathering or information storage.

The item I use the most is RtM. Whenever I come up with something I need to do, I fire that up (whether I’m near wireless or not) and add the task. The next time I’m in wireless range, I fire it up again and it updates my tasks. Boom – easy as pie. I do much the same thing with Evernote – those two are the MVPs of my iPod Touch.

Trent – You always recommend people to invest only what the will employer match into the 401k and the rest into a Roth IRA. Why is that? It makes more sense and cents to invest the max one can deduct from their taxable income(i.e $5000 for this year) then if you have more to invest then invest in a Roth IRA or Roth 401k.
- Frugal Cubicle

To put it simply, I advise that because for most people, their tax rate in retirement will be substantially higher than their tax rate right now. Thus, it makes sense to pay your taxes on the money now (as is done in a Roth IRA) than it is to pay your taxes later (as with a 401(k)).

The biggest reason I believe that tax rates will be higher later is the state of the federal budget. Over the last decade, we’ve run things at an enormous deficit, one that’s not sustainable over the long term. At some point, we’re going to have to start balancing the budget, and the only way to do that is either to slash spending or to raise taxes – and, most likely, it will be a mix of both.

A Roth IRA has another big advantage, too – you control the investing. You can choose whatever investment house you want for your Roth IRA – you’re not forced to choose whoever your employer has paired up with. You also get much more freedom as to what investments to choose, not just whatever investments your employer has.

Pairing the two together, it makes sense that, unless you’re getting matching from your employer, you should put money into a Roth IRA before you put money in a 401(k).

Do you listen to your local NPR station? If so, do you pledge during their fund drives?
- Lisa

Yes, to both. I listen to 640 AM here in central Iowa quite a bit, particularly for Morning Edition and All Things Considered. My wife’s car has 90.1 FM as the first programmed station.

I’m a huge believer in supporting what you use with your money. We both use Iowa Public Radio a lot, so we support it with our money and our time (my wife has actually volunteered to help out with the phones during pledge drives). That’s why I’m a paid user of both RtM and Evernote – they both provide stellar services that I use on a daily basis, so I’m quite happy to support them with my dollars. I’ve even donated to blogs before – if I read daily over a long period, that site has provided me with a lot of free entertainment, and supporting that entertainer means they’re much more likely to keep doing it.

Support what you value.

I recently made a pretty bad purchasing decision which involved me opening a new line of credit at a store (online) and cost me quite a bit of money. I was tempted because of the no interest/no payments deal they had going, but in retrospect I regret spending so much. The deal expires in July, a year after the purchase, and I’m struggling to make ends meet as it is. I’m sitting on an ‘emergency fund’ that is about half of what I owe, plus I have other credit card debt as well. My job situation is bleak at best; I’m currently making minimum wage and the job market around here is horrible. I’ve tried to apply for many other various positions, but it seems that nobody is hiring. What are your thoughts on the situation? Obviously I’ve learned from my mistake and I’ve been saving diligently as much as I can, but I still can’t make ends meet. Please advise!
- Dave

Your first step should be to negotiate with all of your creditors. Call them up, explain your situation, and look for a different plan for repaying those debts. Perhaps you can get lower interest rates on your credit cards and the line of credit.

You may also want to consider selling some of your stuff, particularly the things you don’t use as much. Go through your collections, for starters, and see if you can strip them down or, even better, sell them in their entirety. You should also look at every monthly bill and see how many services you can cancel, and consider doing other things that will save you money over time, like installing a programmable thermostat. Big changes are very useful – can you go without a car, for example? Perhaps you can downgrade your living situation.

These things will free up a lot of money and should get you much closer to your goal.

For your online business, how do you go about doing all of your taxes? Did you setup an LLC or something similar?
- Richard

I have a single-member LLC. The income I receive from that is simply taxed as personal income. A LLC does not file taxes for itself – instead, the income it generates is passed onto the members, and since I’m the only member, that means me. I do the taxes in TurboTax – easy as pie.

In fact, the whole process was pretty simple. It didn’t take much time at all to set all of this up.

Ok, I just read the MSN “Getting by on…..” series, and I want to puke a little bit.

The “Getting by on…. $400,000 a year couple” just blew my mind into bits. Especially the caveat “$400,000 may SOUND like a lot, but remember, in Kansas that’s only $180,000.” OH! Thank you MSN! Now thanks to that example I can finally see the poverty they are living in, struggling to raise two whole kids.

Anyone else read it and have the same reaction? Or am I just being classist here?
- Sophia

All I have to say is this: it is much harder to cut your spending than it is to increase it. Once you’ve become used to spending at a level equivalent to your income, cutting that spending is very psychologically difficult. Many people (myself included) need some sort of wake-up call in order to make changes, and for some, that wake-up call has to be pretty severe.

It’s very easy to feel outraged about the situation that those people find themselves in, but think about it this way. Imagine if you had two kids in a private school where they had built up a ton of friends and felt very comfortable and happy. Would you want to pull those kids out of that school and put them in a local public school where they didn’t know anyone and the quality of education would likely be lower? I can say that I would find that choice very difficult, indeed.

Cutting your spending is a challenge, whether you’re cutting $400,000 to $380,000 or cutting $20,000 to $19,000. In both cases, you’re giving up something that’s important to you.

Have you ever tried RAGBRAI?
- Monica

No, I haven’t. It’s a pretty serious ride – 80 mile legs or so – and I’m simply not good enough at bicycling to keep up with legs like that. I have several family and friends that have participated, though.

For those unaware, RAGBRAI stands for the Register’s Annual Great Bicycle Ride Across Iowa. It’s an annual leisurely group bicycle ride across the state of Iowa during the summer, with legs beginning and ending in towns of various size in Iowa. For people who are avid bicyclists, RAGBRAI can apparently be an incredibly good time – the stops along the way apparently turn into pretty entertaining parties, often sponsored by the towns themselves. Check out the website if it sounds interesting.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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59 thoughts on “Reader Mailbag #57

  1. Colin says:

    My 2006 Accord has an oil life % indicator. My understanding is it keeps track of RPM, hours running, temperatures, etc. So it keeps tallies on way more than any person could ever think to do.

    I drove to DC and back from Des Moines, IA, including a trip to Philly, for a total of about 2500 miles round trip. I had the oil changed the day before we left.

    The indicator? 80%.

    I average about 7500 miles per oil change with normal driving. I just may hit 10k on this one. Changing my oil every 3k would almost be criminal.

  2. My new Accord has an oil life monitor. The harder you drive the faster it goes down. Drive like a wimp (I do) and you can go longer. I go about 7,500 between changes but the dealership still tries to bring me in every 3-5k.

    In older cars I would do it every 3k simply to have the car looked at. $20 is a small price to pay.

  3. Gonzalo says:

    Most new cars here in Europe change oil every 30000 km (18000 miles). 3000 and 5000 miles seems like a very short distance between oil changes.

  4. Gumnos says:

    My current company doesn’t offer a 401(k) plan, matching or otherwise. We’re currently maxing out our Roth IRAs, but are there other ways to build tax-deferred retirement funds like a 401(k) would?

    -Tim

  5. Another point in favor of a self-directed IRA (whether traditional or Roth) over a 401k is that 401k’s often charge expenses in addition to those charged by the funds.

    If you search around, it’s very easy to find an IRA that doesn’t charge any such fees. (Vanguard, for instance, is one such company.)

  6. Johanna says:

    It sounds to me like the part of Hillarie’s case that the financial adviser passed off to her assistant was just the part about logging into the account. It’s the adviser herself who was offering the advice about making the investments more conservative. So it sounds like each person is doing her own job, so there’s no problem there.

    My advice for Hillarie would be to share with your financial adviser the same concerns that you’ve shared here. And ask your adviser why she thinks you need to invest more conservatively, and what sort of asset allocation she has in mind. If she can explain her reasoning and respond to your concerns, then she might have something to offer you, but if she can’t, then she’s doing more harm than good.

  7. Nick says:

    On the “getting by on 400K” article. If you dive into where their money is going every year, they spend 8% on food and shopping. That’s a bit under $3k/month.

    Even in New York, I feel like they should be able to trim that down pretty substantially. Even if you assume the other categories to be fixed, there is savings in that one to be had.

  8. Battra92 says:

    My Hyundai manual states that I must do oil changes ever 3,750 miles. It’s not quite 5K (though I wouldn’t mind that) but I know that my mechanic is losing my business a little.

    Whenever Public Radio asks for money, I tell them I paid at the office. I have a problem with their far left leanings but I do enjoy classical music. The compromise is I listen to CDs or XM in my car.

  9. Joanna says:

    To Sophia:

    On this one, I gotta agree with you girl. I understand Trent’s point that it’s difficult to cut your spending at any level, but I just don’t think that it is as difficult to cut spending from 400k to 380k as it is to live off of 20k in the first place.

    In general, I would say that this couple should have used some of their $400k to travel to a third world country and get some perspective.

    And by the way, $180k in Kansas is a LOT of money!

  10. Mike says:

    Pulling the kids out of private school, and the kids will lose friends? Oh Boo Hoo for the precious snowflakes.

    I wonder how they’d react to living on the streets because their parents chose badly and bankrupted themselves. Plus, I think the article said the kid is what, THREE years old?? I think he’ll recover from that mighty blow.

  11. Melissa says:

    Thanks for your iTouch recommendations. I won one in a drawing a few weeks ago and have been loving it – I’m using it as a PDA primarily and it’s a handy little tool with a great interface.

    I started out using Twitterific but switched over to Twitterfon – it’s got almost the exact same look but no ad banner. Also a warning – if you get an update message for the NYTimes app, don’t do it. I updated yesterday and now it takes a long time to load and locked up the whole iTouch once. There are similar comments on the app ratings, so I’m not the only one.

  12. Johanna says:

    I just read the “Getting by on $400k” piece. (For those who haven’t seen it, it’s at the top of the page when you google “getting by on.”) It says that the private school tuition (for a three-year-old) and the nanny take up one third of the couple’s after-tax income. And since they’re already spending half their after-tax income on housing, that’s TWO THIRDS of their uncommitted income that’s going toward, basically, child care. This is obviously where they’re running into trouble. Nannies and private schools are luxuries, and from the look of things, they’re luxuries that these people can’t quite afford – at least, not if they want to keep living on Fifth Avenue and have any money left for other things.

    Speaking of their Fifth Avenue apartment, I find it hard to believe that there’s no way that they can get a cheaper place. I know that housing in New York is expensive, but housing where I live is expensive too, and they’re spending ten times what I spend on housing, for an apartment that’s about the same size.

  13. waldo says:

    Okay, here’s the deal with RAGBRAI. Everyone sees the 80 mile average and freaks out a little. But you don’t just hop on your bike and ride 80 miles. You go five or ten, and stop in a little town, eat some watermelon, visit with the locals, take your picture with a cow (or something, it’s iowa. this counts as fun.) and then get back on your bike and go another 10 miles. You have all day to do this. Take your time, it’s not that bad. I’ll be doing RAGBRAI #4 this summer, it’s always a blast.

  14. Johanna says:

    And one more thing about the $400k couple: I love the implication that a public school will only be acceptable for their three-year-old if they can get him into a “gifted and talented program.” News flash: Just because you’re rich doesn’t mean that your son is a genius, or that he’s entitled to better treatment at a public school than anybody else gets.

    OK, I’m done now. I’m with you, Sophia – this couple is infuriating.

  15. That was some really interesting Q&A there…its really nice to see some regular questions answered by you..

  16. Oskar says:

    I think it is strange that the same car is solded in europe it has to have an oil change every 10000-15000miles (20 000-30 000 kilometers) but when it is sold in the US it needs an oil change every 3000-5000miles. This is true both for european, asian and even american cars sold in both places????

  17. Amanda says:

    Regarding the 401k – I get a match for half up to 6% (for 3% total), but I still put more in instead of a Roth IRA. Why? I work for a fairly large lawfirm, and they pay a pretty good firm to manage our accounts. We have options, as well as bi-annual meetings where the managers discuss the economy, educate us on our 401k, and then individual meetings (also part of the plan, we don’t pay for) where we go over our allocations, they explain their recommendations and we can bring our spouses and they’ll look over their 401k and other investments as well, making sure our full porfolio has a plan that’s working.

  18. Pat G. says:

    Thanks for your comments on the iPod Touch. My old Palm PDA died about a year ago, and I’ve been debating on how to replace it. I had no interest in investing in a Blackberry (my prepay vanilla cell phone more than fits my needs). I was actually considering a netbook, though it would mean carrying around a bigger purse. But all I really need it for is an electronic address book / notekeeper, and it would be nice if it fit in my (smaller) purse. I guess I’d thought that the Touch was only used for music and games, but it may be exactly what I’m looking for.

  19. spritemv says:

    Considering this is a financial blog, I’m amazed you didn’t mention Mint as a must-have iPod/iPhone app. If you are not keeping track of your finances, you should start. If you are, you should consider Mint, the free online money management site. Their iPhone app is killer, allowing you do check balances in your accounts and on your credit cards, keep an eye on your investments, keep track of your budgets, and look up recent purchases. I use it on a daily basis.

  20. Carmen says:

    I live in the UK and all my cars have a recommended oil change either annually or at 10/12k miles MAX, depending on the age of the car and service levels set out by the manufacturer. Oil needs to be checked regularly though (c. every 500 miles) so top-ups may well be required in between changes. That’s my experience of cars & oil (yawn!:))

  21. Art says:

    I change my oil twice a year. And I drive +30,000 miles a year in LA traffic.

    BTW, my BMW just turned 280,000 problem-free miles last week.

    Oil companies and Jiffy Lube want to sell you oil. You don’t have to enable them.

  22. Chris says:

    You should try twitterfon

  23. NYC reader says:

    I read that “Getting By On $400K” article and nearly puked. I live in Manhattan, and definitely don’t make anywhere near what either of those two make, I’m not even in six figures.

    Housing is stupidly expensive here, whether one owns or rents. And if you’re single, it’s proportionately worse, because it is nearly impossible to rent a 1-bedroom apartment that’s habitable under $2000/month, even in this down market. Two decent salaries could cover that expense, but try making it on one!

    In their upscale neighborhood, renting a 1-bedroom would run about $3800-$4500/month, but they own their apartment, so they are probably paying a little less than that in combined mortgage/maintenance (and getting a tax deduction that renters don’t).

    There’s no excuse for their myopia. There are plenty of high-quality public schools located in their neighborhood on the East Side. And instead of a private nanny, they could drop the kids off at day care for less. $3,000/month for food and shopping? Who are they kidding? That’s $100/day, and I find it hard to believe that two adults with two kids spend that much on food and minor shopping. Manhattan definitely has expensive food stores/supermarkets/bodegas, but these folks have a car which allows them to stock up at Walmart and shop at supermarkets in the suburbs (there are no Walmarts in NYC).

    Even if they eat out, there are lots of inexpensive restaurants (by NYC standards), all they need to do is look at their copy of Zagat’s to find them. They must be eating at ridiculous restaurants if they can only afford to eat out once a quarter.

    There’s plenty of low-cost/free entertainment in Manhattan, most museums have a free night, there are free concerts in the parks in the summer, and since these folks live on 5th Ave, they are steps away from Central Park. Let’s take up a collection and buy them a Frisbee they can toss with the kids.

    Reading articles such as this one at MSN makes me want to throw my computer at Bill Gates’ head. I have ZERO empathy for these dopes.

  24. Marcia says:

    As someone who deals with vehicles every day, I would also tell people to read the owner’s manual carefully, and you’ll see that 5000 miles is for “normal” use, and the definition of that applies to only my 89 year-old Mom’s way of driving. Vehicles’ oil and filter changes are key to engine longevity. As they age, and leaks develop, you need regular checks to be sure the engine has enough oil, and it’s clean. Save money by learning to do it yourself, or pay a mere $35 average to have it done professionally, but at 10,000 miles per change, on regular-not synthetic-oil you are going to have black goo that won’t circulate well.

  25. Tony says:

    Your advice on 401(k) and Roth IRAs only makes sense if the person cannot afford to max out their 401(k) and contribute to a Roth. While I agree that just about everyone should contribute to a Roth, a person should also be fully taking advantage of their 401(k) or other employer sponsored program. First, for the immediate tax benefits. Also, so that a person can budget their money with the full 15% going into a 401(k). In almost all cases, if an employee starts by maxing out the 401(k) they never miss the money and there is usually enough left to start funding a Roth.

  26. A.J. says:

    My 2007 Saturn Ion has one of those oil life indicators as well, and the manual says to only change the oil whenever that monitor says to. So far, it has gone off at 13k miles and, during this past winter, 10k.

    When I tell people that I’ve only gotten my oil changed twice in (now) 27k miles, everyone looks at me like I have three eyes, a horn, and a deathwish.

    But apparently I’m not crazy? And might even be considered ‘conservative’ in Europe. Interesting.

  27. Johanna says:

    @Tony: Maxing out both a 401(k) and an IRA means saving (I think) $21,500 a year for retirement. That’s a great thing to do if you can afford it (I can, so I am), but I don’t agree with you that it’s possible in “almost all cases.” For people who can’t, I think Trent has the priority right: (1) Get the full employer match, if there is one, (2) Contribute to a Roth IRA till you max it out, and (3) contribute any additional money first to the 401(k), then to taxable accounts.

  28. Battra92 says:

    @Johanna: I agree on the Rich kid != Smart kids. Long story short I was selected to be in some gifted program of whatever (I was preapproved for MENSA but was too cheap to pay the entrance) and thus could go to the snobby private school for rich kids with a more accelerated program.

    I was just as smart (if not smarter) as most of the kids there yet I was never admitted since, guess what, my parents were too poor to pay the tuition. 7 years of public schooling later (which I admit was a pretty horrendous education) then public college and here I am in a successful career. Success comes to smart kids no matter what. Look at Alexander Hamilton.

    Stupid rich kids grow up to be … well rich but stupid.

  29. Krueck says:

    I had just recently moved into a large apartment and was looking at purchasing some furniture, in attempting to get credit I realized how bad my credit really was. There are several debts on the account, mostly old medical expenses when I was in college and uninsured. Other than the medical expenses, I have one Credit Card with a $500 limit that is maxed.

    A friend suggested that I apply for a debt consolidation loan through my Credit Union, pay everything off, and diligently make the loan payments.

    He also suggested that once I pay off the Credit Card to leave the account open as “Available Credit” because it would help my credit score.

    What is your opinion on this?

  30. SP says:

    “To put it simply, I advise that because for most people, their tax rate in retirement will be substantially higher than their tax rate right now.”
    Worth actually taking the time to think about for each situation though. Historically, even when US was in debt and raised tax rates, tax rates on the so called “middle class” remained roughly the same, and the top 5% shot way up. Look it up. So if you happen to earn a high salary now, you may be better off taking the tax break today. (But in that case, maybe you are maxing out both anyway)

    But in general, probably true.

  31. Tony says:

    Johanna,

    I should have clarified that when I said max out 401(k) I meant contribute approximately 15% of your salary and not necessarily the maximum dollar amount. I know 15% doesn’t exactly = the max, especially for those starting out, but it’s a pretty good percentage to maintain from start to finish.

    When you start a job, if you put 15% in your 401(k) right off the bat, you’ll most likely never miss the money and learn to budget what’s left. I think that’s important given human behavior. Unfortunately most people who put in only what the employer matches will do so and get comfortable living on that budget. Typically they aren’t anymore or less likely to contribute to a Roth because they don’t realize how much less or more money they would have. People spend what’s available. If it’s going into the 401(k) they won’t spend it. When they are ready to make the commitment to doing additional savings to a Roth, they will do it regardless of how much is going into the 401(k). In my humble opinion.

  32. Jim says:

    Trent, “for most people, their tax rate in retirement will be substantially higher than their tax rate right now” Where do you get this from?

    Looking at recent income numbers by age: Median income for people over 65 is much less than people under 65. People over 65 are less frequently in upper tax brackets.

  33. Nowooski says:

    The manual for my 2008 Ford Focus only suggests oil changes every 7500 miles – along with the other regularly inspections. I’ve kept to this and it works quite well, although the dealership still insists on putting a oil change reminder sticker for 3000 miles on the inside of my window.

    I rather wish Ford dealers wouldn’t give advice contrary to my owners manual.

  34. Meg says:

    I wasn’t disgusted by the $400K couple. First of all they both seem like self-made, hard workers. A dentist and a guy who got himself a doctorate from MIT hardly elicit vomit from me. And they live in a one bedroom apartment with two small kids and go out to eat once a quarter! Their lifestyle is hardly materialistic.

    Sure they spend a third of their AFTER TAX income on child care/shooling. In NYC a couple making that much would pay roughly HALF of their gross income to taxes, as the article points out. So they care about their kid, arguably to the detriment of their finances. Just like most every other family in America! Why does this make people want to vomit??

    Paris Hilton makes me want to vomit. This family just makes me want to make them a better budget.

  35. bethh says:

    I only drive about 4,000 miles per year, and wasn’t sure how often I should change my oil. I did some looking around on the Car Talk website, and they recommend every six months. Any thoughts on that?

  36. Don says:

    Jiffy Lube wants me to change my oil every three thousand miles, but like Art said, they are interested in selling oil.

    Honda says I only need to change it every 7500 miles, but they have an interest in my car wearing out and needing to be replaced–not too fast, but still….

    So, I figure every 5000 miles is about right.

  37. Eryn says:

    I’d like to quickly respond to the mention of the value of fee-only advisors.

    The Garrett Planning Network is comprised of 300 members, nation wide, who provide: hourly, fee-only, unbiased financial advice for people from all walks of life and there are NO minimum net worth requirements.

    Garrett advisors can be located through the Garrett Planning Network’s website. http://www.garrettplanning.com/

  38. GLHSshelby says:

    I used to be a car salesman – don’t hate me yet – and I come from a family of mechanics in Denver. In regards to the Oil change question – If you have an oil life monitor it is always good to get it changed when it is between 15% and 30%(if you are a lead foot it is better to do it at 30%). Once you get below this you will typically see a significant decrease in MPG.

    If your car doesn’t have an oil life monitor system then I would follow these guidelines:
    1) If you have fuel injection car (typically mid-90 and newer) and do a lot of stop and go city driving I would still change the oil every 3000 +/- 500 miles
    2) Same situation as above but no city driving I would probably change it every 4000 miles for lead foot drivers and closer to 5000 for non-lead foot drivers
    3) Any car that does not have fuel injection I would change religiously at 3000 miles max.

    If anyone is curious as to why I make these recommendations it is due to fuel injected engine having a specific amount of oil injected each time a combustion cycle occurs. Before fuel injection a car would use vacuum tube and mechanical pumps which are a lot less accurate as far as how much oil gets in.

    But as always if your car has a maintenance manual I would read that and follow those guidelines.

  39. Shevy says:

    One point about Trent’s advice to Dave, the guy who got himself into a too-expensive no payments/no interest situation. You do NOT want to negotiate with those guys. You want to move heaven and earth to pay that just before the time limit (1 year) expires because you’re looking at the difference between paying NO interest or paying usually 28% that’s been compounding all year! They don’t negotiate. You either pay it on time or you pay ALL the interest too if you’re even a day late.

    Right now Dave has half the money he needs and he has about 3 months left to accumulate the rest. He can’t return the item after having it for 9 months. If he can set aside 1/6 of the total cost of the item each month from now to July, that’s great. If not, then he should start cutting things from his budget, selling things, working overtime or taking a 2nd job, etc. until he does have enough. And, yes, he could try to get a lower rate on his other credit card debt.

  40. Amber says:

    So do you really need to change your oil so often, or can you just fill it when it’s getting low and change it less often…maybe 2xs a year? I have a car that historically does not last long an I have quite a few miles on it.I would like to keep it running for as long as possible since I have no car payments. What would be the best to do?

  41. PaulT says:

    Yeah the “Getting by on…. $400,000 a year couple” thing is pretty stupid, and it’s difficult to have any real sympathy for them.

    Yes, it’s hard to cut your level of spending from a level you’re accustomed to, especially if the reason is due to external factors you had no control over. However, the “self-employed/hard working” excuse mentioned by others above is always a load of bull – poor != lazy. There are plenty of hard working people who have to worry about keeping a roof over their heads or where next week’s meals are coming from.

    But, nobody with that sort of income is ever going to be in any real problems. Many families who are truly “getting by” won’t see that kind of money in TEN years. They just have to cut back on the many luxuries they have until the economy improves. Don’t think they have an extravagant lifestyle? Their food budget alone is more than many hard working people get, and that’s assuming their employers haven’t laid them off or their own business have gone under. If they can’t afford the level of child care they’ve committed themselves to, then a sacrifice will have to be made.

    At the end of the day, they are not entitled to every luxury they are “accustomed” to, for themselves or their children. If their only problem is worrying about whether they can afford to spoil their kids rotten or not, they haven’t got any real problems. Many people have lost everything through no fault of their own in recent months, and it’s hard to have sympathy for a couple like this when other families are living in tents. They have a thousand more options than most families. Undesirable options that might take a bit of pride swallowing, perhaps, but options nonetheless.

  42. Lynn Clark says:

    Hi Trevor:
    A question for you…why don’t you raise chickens? Since you live in rural Iowa I would think that would be a no brainer. They’re great…and I’m sure your children would really enjoy taking care of them. We have 3 and we get 3 eggs per day. Since a dozen of organic eggs at our supermarket (Australia) is +$6.00, we feel quite proud of ourselves. Of course, we can’t consume 21 eggs per week, but we give them away to family and friends. I love my backyard chickens!

  43. Jon D says:

    When I rode RAGBRAI last year, I saw everyone from super fit roadies on $5,000 bikes to 250lb fatties on old rusty schwinns. I saw 8 year olds and 80 year olds. Everyone can do it, and it gives you an excuse to chow down on Iowa’s greatest natural resource: pie.

  44. Shelly says:

    I agree with the others regarding oil life monitors — if you have one on your car, go by that. I’ve owned my 2008 Chevy Malibu for just under a year now, have driven over 8,000 miles, and I still don’t need an oil change quite yet.

    At this point, those oil life monitors are accurate enough that warranties are based on them (meaning you just need to get an oil change when it tells you to if you don’t want to void your warranty). And it helps the environment, too!

  45. susan says:

    I used to have Trugreen perform lawn services with a $400 yearly rate. I also had acrylic fingernails that required bimonthly fills at $20 a pop. I eliminated both of these things when I realized I would rather have the money in my pocket. Trugreen was a convience, but overkill. Treating the lawn 6 – 8 times was too much. I think they became complacent as well, because I would have to point out trouble spots. This year I have already started caring for my lawn and enjoying the feeling of self sufficiency and the extra $$ in the bank. I perform my own manicures and got rid of the claws. Another sense of satisfaction and more money in the bank.

    Keep up the good ideas Trent, they are very useful!

  46. Chris says:

    Trent,
    In today’s mailbag, you said invest the maximum to get a company match in your 401(k), then invest the rest in a Roth IRA. While I completely agree with that, what do you suggest to someone who has problems finding that little extra to put in their Roth because they are tying to pay down debt(while going to college), and invests in a Roth 401(k) at their job? Should I become more fastidious with my budget and go for the IRA or continue with the 401(k) where my investments are doing better?

  47. Jane says:

    Do you have any thoughts or suggestions on the 2009 tax credit for adding energy efficent windows and doors to a home?
    thank you

  48. Sharon says:

    The 400K couple was paying a top dollar for EVERYTHING they wanted. Location? 5th Avenue. Childcare? a nanny. Food? Organic.
    If he was willing to commute 30 minutes more each way, I figure that if they could sell the condo they have, they could buy an equivilant condo in Montclair (one of the best burbs in NJ) and have NO mortgage. For a mortgae less than half what they have now (I figured $250,000 equity), they coulde have a 4 bed, 2 bath house. Car expenses would be cheaper. There are probably very nice childcare options for less than the $3000 a month they are paying. She could move her practice to NJ if they felt the loss of a parent for one hour a day would be too traumatic for the babies. Although I think the privilege of having your own bedroom could make up for that. A small garden in the back would be ever so “green” and provide some of that organic food cheaper. And Montclair has its own Whole Foods store so they would have that.
    And I am guessing that with the four bedroom house, they could get a live-in aupair for the babies, at less than the 40K they are paying now.
    Between taxes, child care, and preschool, I am guessing that they would be better financially to have one parent stay home with the kids…if they had to stay in NYC.

  49. Johanna says:

    Actually, they weren’t paying top dollar for *everything.* They were buying cheaper home furnishings, for example. If their attitude had been, “These are the things that we’ve chosen to prioritize, and it may seem strange to some, but it works for us,” I would have had no problem with that. But instead, they were saying, “Oh, woe is us, we’re just getting by.”

    I think that the real lesson to be learned from their story is that even people making $400k can’t necessarily afford everything that they desire. Chasing higher and higher salaries is not going to make you any happier if you don’t already know how to be content with what you have.

  50. Chapeau says:

    Trent,
    First, my condolences on the loss of your grandmother. I still miss mine 25 years later.
    I was reading your series on buying a house, and I have a question about that. Did you read a particular book or books that you would recommend for someone considering buying a first home? (Or maybe building, I’m picky)
    Thanks!

  51. Karen says:

    A few things:

    1) I bet the couple has some student loan debt or had previously been paying it down aggressively. My partner and I gross about $320K a year, but have approximately $2300/month student loan payments between us — a combined debtload of $260K.

    2) Kids are a budget-buster in NY. I imagine they have a nanny because both of them have jobs where they may not always get off “exactly at 6″ to pick up the children from daycare.

    3) The apartment on 5th Avenue was probably used as an investment vehicle. Something lots of people tried to do.

    I’m not saying they don’t need to cut back in certain areas, but I agree with Meg: they are two people with demanding jobs and are just trying to do what is best for their children.

  52. Ann says:

    Trent,

    My husband and I are looking to buy a house in 3 years or so. I am currently working one day a week and am going on maternity leave this summer. I have the option of either going back to my one day a week schedule, being on call, or quitting all together. I will have worked for this company for over 2 years at that point.

    I’m leaning more towards either being on call or quitting all together. Would either of these options negatively impact our ability to get a loan, since we would technically become a single income family? As it is now, my paychecks are picking up the little things in life like birthday gifts, etc, so we really only live on one income.

    Thanks!

  53. Jenni says:

    Hi Trent,

    My husband and I are expecting our first baby this August, and have recently begun talking about starting a college savings account for her. We know about 529 plans, but have questions like what happens if she gets a full scholarship? Or, if she doesn’t go to college? Then, a 529 plan doesn’t seem ideal. Are there other routes we could/should take? What do you recommend?

    Thanks!

  54. stef says:

    commenting with a question for a potential future mailbag:

    i am receiving a substantial tax refund this year due to the fact that i was in school for part of last year and received credits due to that fact.

    i am currently unemployed, but i have been offered a job…there have been a few kinks and i am hoping to start in two weeks (although there is always the very small possibility that things could go awry and i may have to begin my job search over again).

    i have numerous student loans (most in grace period or economic hardship deferment), and almost $3k in credit card debt at 24% interest.

    i’m trying to decide if i should throw a large chunk of my return at my credit card debt because of the crappy interest rate (min. payments are just over $100 right now), or if i should only make a small payment and reserve the refund money in the small chance that i don’t end up starting the new job in two weeks.

    i really hate having this credit card debt, and so my first inclination is to pay off as much of it as possible, but i don’t want to make any rash decisions. any advice is appreciated.

    thanks!

  55. Allan says:

    Trust me…If I can do RAGBRAI, you can do it.

  56. Former almost-New-Yorker says:

    Reading the “Getting by on $400,000 a year” article reminded me why I don’t live in the New York City area anymore. My husband and I both worked in New York City but lived in New Jersey, because Manhattan is ridiculously expensive.
    The point of the article,to me, is that people who earn $400,000 a year feel like they should be rich. That’s almost half a million dollars a year – so where’s their mansion? Or at least their second bedroom? Why do they feel poor when they make so much money?
    Living in New York can really mess up your perspective, because you can make a big salary and still live in an apartment smaller than some college dorm rooms. Rent, mortgages, taxes, groceries — all your expenses are much higher than for most people in this country.
    I wouldn’t say I feel sorry for this couple, but I understand their frustration. People in almost any other part of the country with their salaries could be living the good life, while they share their bedroom with two kids. It has to be hard to accept that in their neighborhood, $400,000 barely puts them in the middle class.

  57. Sharon says:

    Johanna…you are right. I think that is what I reacted to the most. Walmart inside the apartment but a millioon dollar lifestyle outside. To me a cut in the million dollar outside (address, most expensive pre-K,etc) to a three-quarters of a million life would result in a better life overall…at least to my mind.

  58. Marcia says:

    As I said, check the oil yourself: it should not be dark at all, but a light to medium brown with no foam, and the dipstick (if you have one) should show whether you need to add some. The engine should be cold when you look at the level. If you drive under 5,000 miles per year, change the oil & filter once a year (to forestall condensation moisture contamination) and add “dry gas” to the fuel tank,to prevent any fuel moisture problems. It’s much less “green” (and costs a lot more green)to have to toss a motor out before its time, because it was improperly maintained, than to just do it right. Find a repair garage that takes your used oil and burns it for heat, which means less oil pumped out of the ground, and no illegal dumping. Save money and be green by driving slower, and take off slowly from stops.

  59. Janine says:

    Hi Trent,
    First off, GREAT job with your blog. I seriously look forward to reading it everyday. I do have a couple questions.
    A little basics, i’m 24 years old with a 4 year old. When he was born I was alone, I have always been alone. I am in court for getting child support, but thats a whole other issue, due to his father doesn’t pay. So, I have lived on my own with my son going through apts and now were in a house.
    I purchased my house in Sept and love it! I am as frugal as I can be. I plan my meals, and use coupons as needed.
    I am actually established with my emergency fund. I am an RN now and have been for 3 years. I have been able to save. MY retirement, i’m contributing to and thinking of opening a Roth IRA, but undecided. Should I? I have a 401K plan right now and my company does not match my contributions.
    Now, my son. I started a 529 plan for him and then a guy who sells life insurance sucked me into a whole life policy that made it look like I save all this money. Well, I read one of Suze Ormans books and did some more research and I am going to have him come over Tuesday and get a Term life insurance and I want to use the left over savings for my son’s college fund. But, I hear 529s arent the best. What is?

    Ok, I think that’s all. I hope you can help!!

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