Reader Mailbag #70

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.

I’m getting married in September to a woman who just started a Master’s degree program. We have a fair amount in savings and have set some of it aside for the next 2 years of her college expenses. You’ve discussed 529 plans before, and that got me thinking about a possibility. Could I start maxxing a 529 plan and live out of that savings, then use the 529 to pay for her last year of college? I don’t like living out of savings, but that money has already been taxed. Say her last year of school costs $5,000; I’d be saving about $500 in federal taxes by utilizing a 529 plan. But can you put that much in a 529 in a year? Can you turn around and use the money that soon? We live in Missouri, if the state’s plan types are different.
- Michael the Dumb Tech Geek

There’s no limit to the amount you can contribute to a 529 for you or your spouse (provided you’re filing your taxes jointly). An aside: the only limit is that such contributions are seen as gifts in the eyes of the federal government and thus if anyone else contributes, their contribution must stay under the gift tax exclusion ($12,000 this year, $13,000 this year) or be a one-time gift that isn’t repeated over the next five years (allowing up to a $60,000 contribution). Anything over that would be taxable.

However, if you’re saving over that short of a term, putting your money into any sort of risky investment is extremely risky. You sure can contribute to a 529 as you suggest, but you should choose a really conservative option. In that situation, it basically becomes a bank account where you don’t have to pay taxes on the interest earned if you spend it all on schooling.

No matter what you do at this point, you’re not going to earn any major gains either way unless you’re extremely lucky or take on a large amount of risk.

I believe you owe it to your readers to point out that 529s are a big gamble because if your children get a full scholarship or decide not to go to college you could end up paying income tax on the 529 earnings PLUS sometimes a 10% penalty. Whereas the funds you choose to invest in the Roth IRA are guaranteed to retain all the benefits, tax breaks, and flexibility of the Roth no matter what happens with your child.
- Sophie

The only way that occurs is if you have a child that earns more than full tuition, room, and board scholarships for their undergraduate work, doesn’t attend graduate school, and is an only child. Read the details here. If any of those details are untrue, then the 529 works quite well.

On the other hand, when you use a Roth IRA for education expenses, you have to pay income tax on any gains used for education – using a Roth IRA for educational expenses only avoids the 10% penalty. On the other hand, for education expenses, a 529 is tax free.

So, a Roth IRA is preferable for education expenses if you have a child that earns more than full tuition, room, and board scholarships for their undergraduate work, doesn’t attend graduate school, and is an only child, because in that case, the child would have to pay income tax and a 10% penalty to get the money out of the account. Otherwise, the 529 is preferable, because you don’t have to pay income tax at all for education expenses.

I think, for my kids, I’ll stick with the 529.

*Everyone* told me that I would eventually grow apart from my high school friends when I was graduating high school.

They are still my closest friends. Two of them live with their husbands and children within blocks of my house. I see them multiple times each week.

I graduated high school in 1992.

I know it’s unusual, but it’s NOT a given that you will lose your high school friends. Maybe likely, but not guaranteed.
- Heather

Here’s a better way of stating it. There are two types of friends people have in life: friends based on the overlap of interests and experiences and friends based on true caring for each other.

Most friends people find in a high school environment are of the former type – you’re friends because you know the same people, go to the same school, attend the same classes, and so on. When those touchstones go away, so do most friendships.

Now, in some cases, those touchstones get replaced by other ones. You stay in the same town, live near each other, work in similar jobs, and stay in similar social circles. If that happens, you’re keeping those touchstone-based friends, it’s just that the touchstones have changed.

My oldest brother is a great example of this. After he graduated, he more or less stayed in the same area where he grew up, and at least some of the group of friends he had in high school did the same. Those guys remain friends to this day. If he moved away, would they remain friends? I’d bet against it – he might stay in touch with one or two of them, but he’d find a new social circle based on common interests wherever he moved.

It’s healthy to have both types of friends – some transient, some permanent. Disappointment comes in when one group is confused with the other.

In Your Money or Your Life long term treasury bonds are suggested as the ideal retirement investment. Their logic supporting that seems to make sense- the returns are predictable (which is important when you’re living off of them) and the principal investment is perfectly safe. Why do you find the stock market to be the better option? Is it just because of the higher rate of returns? Do you worry that the market will fall while you’re “living off the interest” and cut your income?
- Ariel

Your Money or Your Life offers great investment advice for when you’ve actually reached the point when you’re living off the interest – you want the money to be safe.

However, when you’re trying to reach that point, there’s no reason to restrict yourself to ultra-safe investment opportunities. If you’re still employed, you can afford some risk, particularly if the point of living off the interest is a long way off.

So, let’s say you need $25,000 in expenses a year to survive and you figure that your bond investments will return 3%. That means you need to own about $850,000 in bonds – and ideally more than that, so you have some protection against inflation. That’s a daunting number – it’ll take you many years to save it.

During those years, you may (depending on your risk tolerance) find it worthwhile to invest in higher risk, higher reward things. If they pay off, you’ll move that date a little closer. If they don’t, you just delay it a little longer. Over longer periods of time (ten years or more), the stock market tends to return around 7% a year – including dividends and increases in stock value. So, if you have that much time, it’s worthwhile to put some of your money into stocks.

Then, when you get closer, start investing your newer savings wholly into bonds and slowly start moving that stock investment into bonds as well. This way, if you’re getting close, a sudden market downturn won’t hurt you.

When you’ve finally made it, everything is safe and secure in bonds.

here’s a tip that really helped me and my family – RENTING BOOKS. We found the Netflix of books, Bookswim, and it’s been amazing to save money for required school reading in addition to my personal reading. we rent instead of buy – genius!
- Jennie

I hear you can also rent books at your local library! For free!

Okay, enough snark. Jennie does have a great point. Bookswim is basically Netflix for books, meaning you can keep them as long as you want and mail them back and forth for free, only paying the subscription. It’s a reasonable alternative to the library, especially if you’re a slow reader and find yourself always accruing late fees at the library.

However, there are some problems. If I find a book personally useful, I tend to write a lot in the margins – and that’s a big no-no with Bookswim and with the library. I tend to use PaperBackSwap for my book habits. No monthly fee at all. Roughly $2 to send out a book you’ve already read and get another book in exchange for it in your mailbox. If you want to keep a book – say, a copy of a business book that you’ve scribbled all over – you sure can, no problem, no cost.

I think Bookswim does hit a particular niche quite well, one that isn’t met by the library (late fees, long wait lists) or by PaperBackSwap (sometimes limited selection, cost-per-book instead of per month). If you’re an avid reader, it’s probably worth considering.

My high efficiency washer requires HE detergent, so I don’t know if I can use your recipe. What’s the difference?
- Richard Potts

I do not have any direct experience using my homemade laundry soap in a high-efficiency washer.

However, the laundry soap made in that recipe is a formula that does not produce excessive suds, which is the real danger with HE washing machines. It’s also pretty potent.

Thus, the general recommendation I have is to try half a cup of the homemade detergent in a HE load and see how that works for your clothes cleanliness needs.

Do “The Simple Dollar Artists” cater their work for your posts, or do they have a portfolio that always has what you are looking for? Or something else?
- Mol

“The Simple Dollar Artists” refers to a sidebar section on The Simple Dollar where I highlight two artists that contributed a lot of photography and other stock images to The Simple Dollar early on. I wanted some small, interesting items to use as accent pieces for posts – I wasn’t too picky – and so I asked for it. I wasn’t looking for commissioned stuff – I intended it as just a way for people to show off some of their portfolio work, stuff they’d already made that they wouldn’t mind being used on The Simple Dollar.

I was blasted for this and was roundly accused of trying to “rip off” artists, but two loyal readers – Daizy H. and David Herring – stepped up with contributions. All they did was help out a blog that they liked by digging through their collections of their own art, finding five little pieces, and allowing me to use them in posts. In exchange, they both received permanent thanks on the sidebar of The Simple Dollar.

For being kind and helpful, they’ve both had links to their sites that have generated several clicks a day for years, the Google boost that comes from being linked on every page of The Simple Dollar, and a page on The Simple Dollar highlighting their art contributions. Though David’s site is no longer updated, Daizy’s site is actually pretty interesting and I stop in regularly.

In fact, “Daizy” actually asked me to begin using a pseudonym for her because the link was attracting more attention than she wanted. If she’s still reading, I wonder if she considers the deal to be a “rip off”…

Just came across this article on LifeHacker – http://lifehacker.com/5280491/the-road-to-happiness-in-your-work-lies-in-the-hooray-zone – and couldn’t help but think that this is exactly what you’ve done with your writing. What are your thoughts on this diagram?
- Dave

I agree wholeheartedly with that image. With my current job, I think I’m firmly in the “Hooray!” part of the picture. I think I started off in the “what we want to do” circle, moved gradually into the “learn to do it better” part, and eventually moved into “Hooray!” (though I’m still learning).

With my former job, I think I started in the “Hooray!” part of the picture but gradually moved into the “Learn to say ‘no’” part and failed to escape from it. I found myself responsible for stuff that I simply didn’t want to be responsible for that ran contrary to what I loved about the job in the first place and that hurt my enthusiasm for the work quite a bit.

That’s a very good image – a great way of summing up a lot of the ideas I have about work.

Here’s a question for a future reader mailbag; what to do about failed frugal experiments? Or maybe stories of repurposing frugal moves that don’t work into stuff that does.

Tonight’s example: I have a $1.88 packages of noodles, cream of mushroom soup + lox casserole experiment in the crock pot that for various reasons, is not edible. I’m not out a lot of money as these were all pretty much on sale, but i feel the guilt of waste as I scraped stuff into the garbage.
- Betsy

I simply chalk those up to experience.

The way we look at meals is this: if it’s terrible, we’ve learned never to prepare it again. However, it’s still a meal, even if it’s one we didn’t enjoy. It still provided nutrition and sustenance, even if it didn’t provide enjoyment.

I look at it the same way if I try a generic version of a product. It’s a trial run at a low cost. If it works out, great – I’ve found a good long-term solution. If it doesn’t work out, I’m not out too much and I’ve usually been able to use at least some of the product.

Some experiments are going to succeed. Others are going to fail. But those are short term failures – and long term successes. If you have a bad meal or use a bad product, it doesn’t have to ever be repeated – you can go back to what worked before with only a small loss. If it works, though, you’ve found a new routine, likely one that requires less regular spending on your behalf.

One success – because it’s a long term success – is well worth ten failures, in my eyes.

One of our favorite restaurants is cafeteria-style, but they have bus-staff to clear the tables when done. Clearly they’re not providing the same level of service as a sit-down restaurant, but there’s some sort of service. We’d like to leave a little something, but don’t know an “appropriate” amount…something more than 0% but less than 15%. Do you or your other readers have a suggestion?
- Gumnos

I really don’t worry that much about “guidelines” for tipping. Tip whatever you feel like the service was worth.

By “service,” I do mean the whole package. Many people focus really heavily on the table service, but that’s only one part of the experience. If you get no table service but believe you’re getting exceptional value from the food, there’s no reason not to tip a little in any situation.

If you spend $7.95 at a cafeteria and the food was great, I see no problem tipping a dollar. Just make sure that you do it in such a way that it’s not accidentally thrown away – and also be aware that it’s likely to just vanish into the pocket of the first employee that finds it.

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

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...

59 thoughts on “Reader Mailbag #70

  1. Bill in Houston says:

    Tipping in cafeteria or buffet style restaurants. I generally leave at least 10%, depending on what goes on. If they just clear the dishes, 10%. If someone comes to fill my water/tea/soda glass, then up to 15. I tip an average of 15% in restaurants, and go up to 20 for exceptional service. I consider someone refilling my glass in a cafeteria as “above and beyond.”

  2. Johanna says:

    On tipping: To me, the relevant question is, “Are these workers being paid less than minimum wage – or less than the market wage – with the expectation that the rest of their earnings will come from tips?” If so, then they deserve a tip. If not, then they don’t. Whether the food itself is good value or not shouldn’t figure into it – although it certainly does figure into my decision of whether to visit the restaurant again in the future.

    Unfortunately, the relevant question is one that I don’t know the answer to. I know that waitstaff in sit-down restaurants can and often do receive less than minimum wage. But I don’t know about the bus-staff in cafeteria style restaurants, or the cashiers in coutner-service restaurants. Does anyone know?

  3. Jeff says:

    I wanted to try PaperBackSwap, but like Trent I write in the margins of the books and in the PaperBackSwap guidelines, it states that, except for textbooks, there can be no writing.

    When I write in the margins, it is small and non-obstructive. Any experience with this?

    Also…how much does it cost to mail an “average” book nowadays?

    Thanks!

  4. Tabitha says:

    Just wanted to say that I worked a buffet a while back in college, we were paid the typical server salary which was $2.13/hr at that time. The minimum wage was supposed to be made up in tips. So now, whenever I’m at a buffet, I assume this is the case and leave minimum a dollar and if I have my entire family I’ll leave more depending on the amount of mess we leave on the table and our requests during our meal. Don’t forget the tip on a buffet of any kind.

  5. vana says:

    I bought the Global Knife and I really like using it in my kitchen. I can cook meals faster now. However, I want to know how do you sharpen this knife?

  6. Thanks for the answer Trent. You’ve got a loyal reader, and I even follow your tweets!
    I think my calculations about tax savings were based on the idea that I didn’t pay any taxes on the money I was contributing. Pretty sure that’s wrong. But you skipped over that and answered my questions well.
    Getting married raises enough fun financial questions as it is. I’ll probably forgo the short-term 529 and focus on other things, like saving money on my car insurance :-)

  7. Whoa, half a cup of laundry soap? They’re called High Efficiency washers for a reason… there’s not that much water to dilute the soap. I’d never use more than a quarter cup, and for a normal load, we use two tablespoons. Too much and you end up with soap scum left in the clothes, and they’ll start looking gray. (Ditto without white vinegar in the fabric softener cup, too.)

  8. Sergio says:

    Hi Trent,

    I’m an frequent reader of your blog & I really like your advices and articles.

    Here’s a question/request I was trying to ask you from a long time ago (but I think I wasn’t ready).

    I’m living in Mexico, and things here are a bit different from US. Usually you stay at your parents place until you finish your university education (sometimes you leave only when you have your own family or you stay with them forever).

    I disagree a lot with this point of view but it’s really hard to start living your own life at your own place.

    I know that in the US a lot of students travel to other cities and states when they go to college and in some universities there is a school dormitory service available so a lot of young people start living by “their own” at an earlier age than we do. (Yeah, a lot of students live with their father’s money and that not really independence, but you have to manage the available money really well).

    I’ve just finished school in December, and I’ve been working for about a year at a medium-big company (when I was attending to school I was getting only part time salary, now I’m getting close a little more).

    With the economic downturn, the company I’m working for is moving their offices to the suburbs (I’m leaving and working in Mexico City). The new locations will mean 30 minutes more of time lost in the mornings and nearly an extra hour by the afternoon/night. (Total transportation time will be 1:45 hours in am and 2:15 pm). But the paycheck and benefits will be more or less the double I’m receiving now (right now I’m getting the equivalent to 600 dlls a month, more or less most fresh graduated get, with the new offices I’ll be getting approx 1300 – 1500 a month, wich is a little above the regular paycheck here).

    I made some numbers and the extra transportations costs will be the third part of a little student apartment rent will cost (like 30 minutos from new work location and an hour from parents place).

    An earlier plan in my life was to move close to the zone I’ll be working mainly because a lot of lifetime friends and relationships live there and it’s a nice place to live.

    The relocation of the office will be by mid october, I’ve not signed a new contract because I’m researching about new benefits I’ll be getting. Also I want to know how much the cost of living by my own will be.

    I’know there are some “hidden” expenses you face when you move from home, a lot are from the new house equipment and maintenance, other are from food and car related and all that stuff. I’m kind of independent right now, i contribute with part of my salary to the house maintenance and most of the time I pay (and prepare) my own food, do laundry, go shopping, but its obviously not the same.

    My plans (if economic situations are stable) is to move in the first days of 2010. I’ll be saving the most I can. Also I want to be aware of all hidden expenses and make “rehearsals” and budgets to see how will life will be like that.

    I’ll like to know you (and your readers) point of view/advice about this. Reading your time machine summary from the weekend I spotted an article focused on newlyweds and students about Kitchen Equipment and I really like it. Articles like that is what I need right now, if I’m going to spend money I want every cent to make a difference.

    I know you have a family and a lot of your readers are older and more experimented people than myself, I’ll be thankful if you can give me some advices or the name of articles you have wrote about it (right now I’ve found some).

    Thanks in advance. BR.

    PS: Sorry about the long, long text. Also, sorry about the grammar, spelling mistakes.

  9. Charlotte says:

    The home brew laundry detergent works just fine in a HE washing machine. Some people recommend going down to half-strength, but I use the full cup (think extremely dirty toddler clothing) and have no problem with too much sudsing.

  10. sir jorge says:

    just a heads up, I tried book swim and found that they DO NOT have the selection of books they claim. I found most often than not that they had nothing that I was looking for.

    I used to be vehement about NOT using the library, but when times got tough I caved in. Now I’m reading more than ever, and for free. I have really reconnected with reading, and have saved hundreds monthly. I know some libraries are not as HUGE as you wish, but if you work with them instead of complaining you’ll be surprised how much can change and in turn how much you can save without spending a dime!

    I just finished reading Batman RIP a $25 book and rented it from the library. I am glad too, cause the story wasn’t all that good.

  11. guinness416 says:

    My rule is if I don’t know where tips left end up or if the staff are paid “restaurant” wage, I just ask the waiters or manager. There’s really no need to assume although it’s amazing how many people will do this. In one Indian buffet place we go for lunch every so often tips left on the table go into the owner/manager’s pocket – so we hand them straight to the waiters. In another the staff are paid okay but put in a colossal number of hours, so we tip ‘em too.

  12. Thanks for taking on that nonsense about Roths being as good for college savings as 529 plans. I can’t believe how frequently that advice gets passed around.

  13. moot says:

    RE: Library

    I use my library to rent things like Audiobooks (for long car rides) and DVDs. I’m too much of a clean-freak to borrow most books. The books I own are well cared for and handled, but some of the books I’ve borrowed from a library… I’m not sure I’d touch them with gloves on they’re so filty.

  14. alex says:

    Wow, with 529 plans, you completely ignored the possibility that the kids might not go to college. Please address that.

  15. rianne says:

    “If you get no table service but believe you’re getting exceptional value from the food, there’s no reason not to tip a little in any situation.”

    Except in most restaurants, the tip goes straight to the servers, not the kitchen. Most of the places I’ve worked the servers get tips and the kitchen tends to get a better hourly wage. If the food is good but the service is awful, I will not tip, or tip poorly. Of course, I’m Canadian, and here servers can get paid less than minimum wage, but it’s something like $7.60/hr vs $8/hr, so I don’t feel too bad about not tipping for bad service. In the US, your mileage may vary.

  16. Damester says:

    Jeff:
    I, too, am a fan of PaperBackSwap.com. That said, the costs for shipping vary, based on the weight of the book (which the site very helpfully supplies). Plus the not-always-considered speical fees, see below. And the cost involved to get something mailed.A

    The site provides several mail options, some of which cost a bit extra (fees that go to PaperBackSwap.com, which I have no problems with as I think it’s worth it and I look it at contributing to a great site.) so that the printed mailing label, which they make available, prints out, if you choose, with complete postage and tracking info. The good news: If you pay the extra fees, you get an official mailing label and you can then drop books over 13 ounces into a mailbox.

    Keep in mind, if your book/package is more than 13 ounces, which many, if not all, books are, you can’t just stick stamps on and drop it in a mailbox. You have to take it to the post office and, wait for it, stand in line to hand it in (in the post office, the drop box will say on it: No stamped packages over 13 ounces.)

    Now, if you live in the suburbs or the country, you can probably just give the book to your mailman or leave in your mailbox for pickup.

    However, for us city folks, it’s an issue for anything over 13 ounces. We never know when the mailperson will come. There is no place to leave anything for them (or it will be stolen). And we can’t put in drop boxes (which are rapidly disappearing). So, that means a trip to the post office.

    In my location, that trip is now $4.50 RT for the bus. So that defeats the purpose of any savings in effect.

    If you get a lot of requests for your books (and you do need to post books to participate), and they come in at different times, this can be a problem UNLESS you pay the extra fees, which are less than a $1.00. To me, it’s still a bargain.

    But there are no books mailed out for just $2. The media mail rates (done in lbs) went up just a few months ago.

    The real advantage is the price of books you pay for when you don’t have enough credits (credits are earned when you mail out books. but that credit is actually the book itself PLUS the postage) and you buy a credit, which is $3.45 per book. That’s less than the postage alone on any online site.

    And no, it’s not a place to dump dirty, old, smelly books and those that have been written in, no matter how little.

    One of the great things about the club is the condition of the books you receive, which is generally very, very good. With only two exceptions (someone actually mailed me a water damaged, moldy book! and then I got two icky, dirty books from someone else), I have received books in almost perfect new condition.

    For the most part, people respond promptly and you get your books in good time (depending on where they are mailed from).

    Depending on how much you read, and what you pay for transportation, you can still save money by buying books rather than going to the library. And then you can mark up your books.

    Right now, every trip to the library costs me $4.50 for transportation. Unless I can pick up several books at a time, that’s a waste of money. I could actually buy a book and a third for that money from Paperbackswap.com.

    So keep in mind, costs are relative on using this club.

  17. Kevin M says:

    RE: the HE washers. We have one too and find it hard to find the HE detergent sometimes (especially for our son). We just started using less of the normal stuff (like maybe 1/4 capful or less of the concentrated style) and haven’t had any excessive sud issues. OK, maybe once or twice, but the machine basically does an extra rinse to get rid of it anyway. It just takes a little longer to finish a load if you do mess up and add too much.

  18. Kate says:

    Restaurant tips:

    I am increasingly seeing tip jars out for workers at sandwich shops, pizzerias and ice cream shops. I even saw one at the drive-thru window the other day at a BBQ restaurant, but since it was the July 4 weekend and they do an extremely heavy volume of business, at least I can understand that one a little bit.

    If you are just taking your food and going, not sitting in the restaurant to eat, are you required to tip?

  19. Laura says:

    I just had a repair person out to fix my washer and he said that just a small amount of regular detergent is ok for HE washers. He said as small as 3 tablespoons. It really doesn’t hurt the washer at all.

  20. Tim says:

    RE: high efficiency washers, I’d be careful using any detergent not specifically made for HE machines. My mother had hers break and the warranty was not honored because she was using regular detergent. When we bought our own machine the salesman begged us to please give our old detergent away. He said using the regular stuff is playing with fire. (At that point we’d already bought the machine so he had nothing to gain by telling us this.)

  21. DrFunZ says:

    Tipping. UGH. Talk about the system of handing out money that makes no sense. “Buff” in “High Flalutin’ Cafe” serves me one martini, one plate of food and exactly one cup of coffee, a $45 total bill. If I tip at 15% he gets a $6.75 tip which he does not deserve for walking to my table exactly three times. Yet, “Flo” at “Kiss My Grits Diner” serves me a cup of soup (which she clears herself, a salad (which she clears herself), a side dish, rolls and butter, comes back to ask me if I want more (and more) coffee with a total bill of $8.95 – a 15% tip is $1.34. “Custom” says we tip by the total of the bill – which MAKES ABSOLUTELY NO SENSE AT ALL!! Why should a waiter get tipped more because he works at a more expensive restaurant??? “Custom” should change. You should tip $.25 per plate that is delivered – or cleared + a little more of they server is attentive or if they have to set up their own table. Kind of like calculating the cost of Dim Sum plates!!

    In regard to the tip jar – If I decide to use it (rare), I tip just BEFORE I place my order and make sure the person taking the order SEES that I tipped the jar. I usually tip it at places where they hand-dip ice cream. It usually insures a good scoop.

  22. Jeannine says:

    I’ve never seen the following issue addressed regarding 529 plans: Once the child turns 18, that money belongs to him/her and can be taken out without permission from parents. Our financial advisor has told us of a few clients whose children have taken out money and paid penalties/taxes on it to purchase vehicles and assorted other non-education expenses.

  23. Liz says:

    Trent: I love your receipie for laundry detergent. I’ve been making my own for two years now and just recently bought a HE washing machine. I use a 1/4 cup of detergent, and everything gets really clean, with no excessive sudsing. The HE washers only use 5 gallons of water per wash, so you do not need much soap. Thanks for all the great posts and I look forward to more!

  24. Jeannine, I believe you’re thinking of UGMA/UTMA custodial accounts.

    With a 529 College Savings Plan, the ownership of the account does not change.

  25. Michelle says:

    Paperbackswap does have some drawbacks – especially if you aren’t close to a post office, but I’ve swapped 200+ books and saved mucho dinero in the process. And their forums are pretty good for book-chatting.
    2nd Liz’s comment; I’m making my second batch this weekend and have won-over my Tide-devotee husband (that and Skippy peanut butter were the ONLY two things he’s ever been picky about). Now I just have to get him to try my home-ground PB and I’ll be a happy frugalist…

  26. Debbie M says:

    Betsy—I try to turn failed food experiments into something edible. For example, many failed tomato soup recipes contributed to spaghetti sauce. I’ve removed the burnt parts of things. I’ve mixed in more flavors into boring things. Noodle/soup/lox casserole gone bad might have benefited from the addition of cheese, herbs/spices, or salsa, for example, or at least yummy salad or garlic bread to eat between bites.

    Some failed frugal experiments of mine include –
    * shopping at a local grocery store with very low sale prices one week on things that sounded good – everything was extremely poor quality—they could even make chocolate cream pie taste bad; I’ve never returned
    * hotdogs – some cheap hotdogs taste really nasty. Yes, you could cover them in chili, but some of them are really bad!
    * riding a bike to work – I just get so sweaty and I really miss reading on the bus, and sometimes looking forward to reading is the only thing that gets me out of bed in the morning.
    * plastic patio furniture – they seem like a good idea because you can just leave them out and don’t have to worry too much that someone will steal them, but if you leave them out, they get all pitted (at least white ones do) and eventually crack and break from the heat. I also learned to get chairs with holes in the bottom so water would drain out.

    Successes include –
    * buying a ten-year-old reliable vehicle instead of a two-year-old mediocre vehicle – my two ten-year-old vehicles have broken down less often and cost less to repair than my one two-year-old vehicle. My first ten-year-old vehicle also lasted more miles (I’m still using my other one). Plus, I don’t have to pay collision insurance and I can afford to pay cash. (I suspect a normal person would have concluded that buying a two-year-old car was a frugal failure and that I should only buy new from then on.)
    * auditing classes instead of taking classes – I already have two degrees and don’t really need any more classes on my record, though they are still fun. Now if I decide I don’t really like the class, I can just quit going. Or if I don’t really like the text, I can look for other books instead of reading that one anyway and memorizing it for the test.
    * buying clothes at thrift stores instead of discount stores – I pay less per item and can afford higher-quality brands that last longer. Also, since these clothes have usually been worn and washed, I can get a free preview of how they handle use. Also, I am not limited to just what is in style that season, which is especially great when I don’t like the colors that are in season. Also, professional clothes like blazers aren’t crazy expensive there.
    * buying glasses online – I made measurements of glasses I already had and liked the fit of; my new glasses are just as good and I don’t feel so terrible if I lose a pair.

    I agree that it is worth trying new things even if you have a few failures for each success. Especially recipes. It’s so nice to know that I can have yummy pancakes, cheesecake, chocolate cake, peanut butter cookies, or spaghetti no matter which restaurants go out of business, and they will have more fiber and probably less fat than my old restaurant favorites.

  27. Colleen says:

    For the person who asked about homemade laundry detergent in a high-efficiency washer, you can check out this page on TLC’s site for the show “18 Kids and Counting”:

    http://tlc.discovery.com/tv/18-kids-and-counting/recipes/homemade-laundry-soap.html

    I think the Duggars’ laundry soap recipe is about the same as the one offered on The Simple Dollar, but there’s specific instructions with their recipe for how to store and dispense it, and measurements for different kinds of washers.

    There was an episode of their show near the beginning of the series that showed them making the laundry soap as well as going through the other ways they acted frugally to make it feasible to have such a huge family.

  28. Tipping:

    I have no clue about cafeteria style restaurants and the salaries of those bus boys. It’s been a long time for me, but I always leave something on the table. Back when I was a waitress, about 7 years ago, the hourly minium wage was $2.13.

    I really wish people would take into consideration what servers have to go through from diner to fine dining. If you are a server at a diner, volume is key. You most likely have more tables and higher turnovers. While your tips might be lower, you most likely will have more tables over the course of an hour than at a nicer restaurant. I think some people need to realize at a restaurant with a bar, busers, and runners the server may only be covering 3-4 tables and he/she in turn has to tip multiple people at the end of each shift, in which case the take home pay drops dramtically.

  29. Marsha says:

    Re “failed” frugal food experiments: very few food experiments are truly inedible, IMO. Those that just don’t taste great can sometimes be redeemed by adding enough hot sauce (or salsa) and or cheese. I know cheese can be spendy, so you’d have to watch how much you added. I’m just thinking that enough salsa and cheese would turn that lox casserole into a decent dip. :)

  30. prodgod says:

    CentsInTheCity: $2.13 an hour 7 years ago??? Where was this? Was this a special low wage for servers? That is criminal! I was a busboy 29 years ago and I started at $2.90/hr.; minimum wage was promptly raised to $3.10 and then $3.35, where it stayed for many years after that (not for me, thankfully). I can’t believe that more than two decades later, you were paid less than that. I hope you made it up in generous tips.

    Thank you for the splash of reality.

  31. sergio says:

    Just to let you know…… in México minimum wage is 5 dlls…a day.

  32. BreeInVT says:

    Lox casserole salsa dip… thanks, but no thanks :)

  33. Rosa says:

    Sergio, I’m not sure if our advice from a US perspective will really help you. Which applianes and utilities are included in the rent is different from country to country and region to region. My brother moved to Colombia and was surprised to learn his rent covered maid service.

    If you don’t have a local friend who has done this, maybe take a look at some apartments now? And see if you can get a copy of the lease agreement, so you know what will and won’t be included.

  34. Courtney says:

    re: bookswim — tried it, the long wait times between sending books back and getting new ones were too long for me. Also, I could only get out 11 books at a time.
    re: paperbackswap — nice, IF you can find what you’re looking for…even if you don’t mail books out, you can buy credits, which is still cheaper than buying the book new
    re: homemade HE detergent — ask any washing machine repairman, and they’ll tell you that the number one reason HE machines fail is the use of non-HE detergent. It’s actually damaging to the gaskets. Plus, I get ALL stains out with TideHE + Clorox 2HE…clothes aren’t cheap, and it’s worth the extra bucks to save on buying new clothes.

  35. deRuiter says:

    Dear Betsy, Some recipes just don’t work. One good way not to waste them is the compost pile. The best container is an old galvanized trash can with the bottom rotted a bit. You put it in an unobtrusive corner of the garden and consign all failed cooking experiments, plus kitchen waste like peels, tea bags, seeds, apple cores, used paper napkins, and grass clippings and other garden waste. If the can has the lid, even better. We keep two of these under the drip line of the barn (uncovered) so every time it rains the water perks through, speeding up the decomp. While one is “filling” the other is “cooking”. When the second one becomes full, the contents of the first bin are generally ready to be spread on the garden as humus. Chickens or pigs are also grateful for many failed experiments if you live near a farm or keep small livestock. Some failed experiments are not worth reviving. On the other hand, if you home made soup is a little too salty, chop up some potatoes and cook them in the soup, and they may absorb enough salt to do the trick.

  36. Elizabeth says:

    I think one issue brought up by the last question in the article is feeling guilty for wanting to TOSS experimental foods/items that just don’t work out. It’s one thing to say, this meal didn’t taste good, but it was hot and decently nutritious and I’ll toss the leftovers. But she described it as inedible, and I know I feel just as bad tossing an entire pan of awful food or the entire container of cheap product that didn’t work. Maybe it’s an issue of guilt for not being able to “suck it up and make do”, but I’d rather not keep something that didn’t work than feel like a cheapskate fighting to swallow down food that would be considered cruel and unusual punishment in prisons. Nutraloaf, anyone?

  37. Catherine says:

    Re: 529s: “The only way that [scholarships obviate the need for the 529] is if you have a child that earns more than full tuition, room, and board scholarships for their undergraduate work, doesn’t attend graduate school, and is an only child.”

    Someone else asked what happens if the child does not attend college, and I’m curious about that, too. In the U.S. it’s not at all uncommon for a family to have only one or two children. What if the child doesn’t want to attend college, wants to pay for it herself or himself (could happen), or, God forbid, doesn’t live to adulthood? Or what if, because of partial scholarships or choosing to attend an inexpensive school, there’s more in the fund than is needed for the costs?

    In the case of my husband and I, if we do have a child, it will likely be an only, and, given that we’ll have both completed multiple degrees by the time our child would be college-age, it’s unlikely we’d want to use any leftover money for ourselves. So in considering a 529, I’d really like to know more about the “what-if-we-don’t-need-it-for-education” scenario.

  38. Nancy says:

    An issue to consider with 529 plan is the possibility of saving on state taxes. In Kansas, a Kansas taxpayer may take an annual deduction of up to $3,000 ($6,000 for married, filing jointly) from Kansas adjusted gross income for contributions into each beneficiary’s Learning Quest account or any other state sponsored 529 plan for contributions made.

  39. Tyler says:

    Re: Wait staff being paid $2.13 an hour

    Federal labor laws do allow for wait staff to be paid a rate lower than minimum wage, HOWEVER, if the tips received by such a worker do NOT meet the minimum wage rate, the employer is required by law to pay the employee until minimum wage is met. So wait staff are guaranteed minimum wage, even if they receive no tips in a day.

  40. Catherine says:

    Another question about 529s: How does using those funds affect eligibility for tax breaks such as the Hope Credit and the Lifetime Learning Credit? Can you do both? And you can deduct up to $4,000 in educational expenses anyway, so am I right in thinking that tying up the money a 529 isn’t worth it if you’re only able to save a relatively small amount in it?

  41. Bill in Houston says:

    For Post #28, be sure you do not put the peel of citrus fruits in your compost, unless you are composting for citrus trees. The worms don’t like it.

  42. Kim says:

    RE: Comment #31 and tipping at a cafeteria style ASSUMES the waitstaff/delivery person receives enough in tips to cover the difference in wages, whether it does or not. If it does not, the assumption is that the waitstaff/delivery person is not being honest. The owner reports their income to the feds/state as being at least minimum wage and taxes accordingly. But that isn’t really the point as far as I am concerned. I tip at Starbucks, where the staff is paid above minimum wage. Why do we think that if someone is making minimum wage that that is enough? If someone were to offer me a minimum wage position right now I would laugh. In what hovel could I live and meet my current financial obligations on minimum wage? These are hard-working people who serve us, not servant/slaves who we should take advantage of. I know that is not what many of you mean to say, but it is what comes across often with customers. My son, after two tours in Iraq, got out of the Army and had trouble finding a job, so he delivered pizza to be able to eat. He was paid under minimum wage and no, the delivery charge does NOT go to the driver, and tips were abysmal. He wound up making less than minimum wage while tearing up his vehicle.

    Always, always tip appropriately and be glad to do it. You are improving the standard of living for a hard-working person who has provided service to you. My daughter once had a customer tip her the cost of her wedding dress. She will never forget that customer and the joy he had in providing that for her.

    I consider it a blessing to be able to tip. I am happy to share what I have to thank someone for serving me.

  43. Michael says:

    That’s a great point, Kim. Minimum wage is not enough. How much do you tip the guys at Home Depot?

  44. BD says:

    Michael (comment #35)… You don’t tip the guys at Home Depot. They’re not allowed to accept tips – Corporate rule. Accepting a tip can result in being fired. The best way to help a Home Depot employee is to fill out the survey on your receipt and mention the employee *by name* and say you received great service from them. That’s the very best thing you can do for them.

  45. Catherine: The use of assets from a 529 plan to pay college expenses has no impact upon eligibility to claim the Hope Credit, Lifetime Learning Credit, or the Tuition & Fees deduction.

  46. verbose says:

    I live in Missouri and have 529 accounts for my kids with the MOST program. Up to $16,000 (for a married couple) of contributions annually is exempt from Missouri state income tax. The marginal tax rate for nearly all Missouri taxpayers is 6%. So, if you contribute $5,000 in a year, you get $300 off your state income taxes in addition to tax-free earnings. There are conservative investment options available.
    https://missourimost.s.upromise.com/

  47. Catherine says:

    ObliviousInvestor, admittedly I am not very good at understanding the IRS publications when I read them. But Pub 970 says, “A Hope or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits.” And I haven’t read thoroughly enough to see if the same applies to deductible education expenses, but I’d be surprised if it didn’t. So what I’m trying to get at is, the 529 is only useful for educational expenses incurred that are *over and above* what can be claimed for these other benefits available to everyone–is that correct?

    A full-time student, especially one attending an expensive school, would rack up a lot of expenses each year and receive a lot of benefit from a 529. But someone taking one class at a time from a community college would be unlikely to max out the Lifetime Learning Credit ($2,000) each year, let alone the additional $4,000 allowed for deductible educational expenses.

  48. Rosa says:

    Catherine – i have an only child, and if he doesn’t use the money for whatever reason (maybe he’ll get a full ride scholarship and live at home, who knows) the list of relatives who can use it is pretty long – i could get another degree with the money (or better yet, be a grownup exchange student for a year or two), and he has cousins with no college savings at all who could use it for educational expenses tax-free.

    Also, at the point when your child doesn’t need the money, the tax disadvantage of pulling out the cash isn’t really important, I don’t think – it’s like found money, extra-budget, for yourself.

  49. Catherine: Correct, the same expenses cannot be used to calculate the tax free portion of a 529 distribution and to claim either of the credits or the T&F deduction.

    It is worth noting, however, that for a given student in a given year, only one of: the Lifetime Learning Credit, the Hope Credit, or the T&F deduction can be used.

    Also, for families with multiple students the Lifetime Learning Credit can only be claimed for one student per tax return per year.

    So you’re correct in thinking that if a family only has one student, and he/she is going to school very part-time, it’s likely that a 529 plan would go unused.

    However, for families with full-time students or multiple part-time students, expenses tend to quickly surpass the limitations for calculating either credit or the T&F deduction.

  50. Anna says:

    paperbackswap.com is not the only option, I have had lots of luck with half.com buying books for as cheap as 77 CENTS and than paying the $3.99 shipping fee. This means for $4.76 I can get a book, delievered to my door without having to worry about mailing or listing a book of my own to sell. Although I have sold books on their website, mainly textbooks, for a resonable price.

  51. spaces says:

    Actually, going over the annual exclusion for gifts — say, $14,000 — does not result in a taxable gift necessarily, it just eats away the donor’s unified credit. The amount of each individual’s unified credit varies from year to year; I believe it’s 3.5 million per person this year. So you’d only owe tax today on gifts over that amount, though gifting beyond the annual exclusion today will add up over time. IOW, gift taxes only matter for the bloody rich. Hope this makes sense.

    One other point about gift taxes, is that the annual exclusion is per person, per year. If the students’ parents are married, they may elect to share the gift, which doubles the amount that can pass without reducing the unified credit. The same idea applies to a married donee: Married donor + married donee = 4 annual exclusions, or $48,000 that can pass without implicating the unified credit / gift tax, in 2009.

    Now, if I could only find someone to give me and my old man $48k …

  52. Michael says:

    BD, it was a joke. Kim only cares about minimum wage workers in one field. She has taken this concept of tipping and turned it into a vehicle to eliminate her middle-class guilt, not to actually eliminate poverty.

  53. Gumnos says:

    Thanks to all who contributed their thoughts on tipping. It seems to boil down to knowing whether or not an employee makes minimum-wage or less. This is hard to discern tactfully, so we’ll continue to leave a buck or two on the table (usually works out to a 5-10% tip) as a token of thanks for bussing the table.

  54. candylover says:

    A couple of questions for your next Reader Mailbag…

    Do you still do some canning at home? If so, can you do a photo tutorial post on how you go about it or describe your canning process in more detail?

    Also, my husband and I are considering getting a vacuum sealer so we can freeze more of the bulk groceries that we buy. In your experience, is it worthwhile to buy a vacuum sealer and the special bags for them, or is it better to stick with the ziploc bags we’ve been using? I’m wondering what other people have experienced with the vacuum sealed bags and whether they actually prevent freezer burn more than a ziploc freezer bag.

  55. BK says:

    RE: 529s. I think a lot of people are thinking that if a child doesn’t use the 529 money for school, you decide not to keep it growing for another child (or even grandchild) and instead withdraw the funds, that the gain is added to the parent’s income. As Trent mentioned, the gain is added to the beneficiary/child’s income and taxed at the child’s tax rate (not the parents’ rate), which is generally pretty low. So the tax penalty on the gain is really not as high as most people imagine. In the meantime, you’ve been able to invest up to $24,000/yr (whatever the gift tax exclusion for a couple is now) and had it grow tax-deferred.

  56. Andrea says:

    A friend of mine is 28 and in great financial shape to buy her own place instead of renting, which she has expressed a desire for. However, she’s deathly afraid of debt to the point where having a mortgage terrifies her. She paid her own way through college, and although she has a few credit cards, she’s never carried a balance on any of them. She didn’t even really understand how interest worked as I discovered when she started asking me questions about it.

    Even though she knows that buying her own property is something she’d like to do (and she actually recently lent her brother money for his down payment), and not an unwise decision to make, she’s terrified about using most of her savings for a down-payment, about not having a very large financial security net. I’ve tried to explain to her that debt isn’t always evil, and she says that she realizes that, but is still terrified of owing money to anyone.
    Is there any way I can help her get over her fear?

  57. Ed says:

    Hi Trent,

    I have a question for you. I’m just graduated and I’m going to be starting my first job soon, yay! My question has to do with savings. I know there’s a multitude of things to save for, down payment on a house, vacations, appliances, down payment for a car, emergency fund, and the list goes on! I have one savings account, so I’ll be looking at my total savings. How would you recommend keeping track of the different categories?

    Thanks!
    –ed

  58. vana says:

    Hello Trent,
    My husband and I are shopping for 2 used cars. (We had only 1 car which is being totaled and the insurance is going to give us the retail value of that car)
    We have enough cash to put down for 1 car. Do you suggest taking 2 car loans and down paying 50% for each? or Pay cash for 1 car, and only downpay 20% for the other?
    Which will be cheaper? As I also read that loan rate also depends on the amount of downpayment.

    Thanks,
    Vana

  59. Daizy says:

    Hi Trent! I am very proud to be a “Simple Dollar Artist”! I did not realise it was a lifetime honor. I read your blog every day at work but I was off last week so I caught up on all of the posts today. Thanks for the mention, it made my day. I am just a humble hobby-blogger but I love seeing my name mentioned (for good things, of course). Contributing to your blog was an honor.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>