Reader Mailbag #81

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 know that predicting the market is impossible, but different people are saying drastically different things about where they predict the stock market to go in the next year or so. What do you think will happen?
- Vern

First of all, what I’m about to say is solely my own opinion, founded on reading a lot of economics books over the years and reading publications like the Wall Street Journal and The Economist. This is my own opinion and not an expert one.

That being said, I think the economy is turning around, but I don’t think we’re going to return to the economic freight train of 2003 to 2007 any time soon. Instead, we’ll recover slowly. Unemployment will remain high for quite a while compared to 2003-2007, but low compared to other periods in history.

The biggest danger, as always, is finding a healthy balance. I don’t think spending money like it’s water is a good thing right now – but it’s never a good thing. Similarly, I don’t believe that buying bullets and guns and hiding in your basement is a great answer, either – but that’s never a great answer.

Balance, my friends, balance.

Trent, since part of you income is from ads on the site, it would seem that people that read the Simple Dollar via RSS or email would cause you to loose income, is that not the case?
- Bob

There are small ads on the RSS and email feeds, but they earn me less than 1% of my income.

Even given that, my belief is that sending out my writings via emails and RSS is well worth it. Why? It keeps readers interested. Many of those readers click through to the site to read the comments. Some of them open up only one email a month – but that one email might get them to visit the site.

To put it simply, having a reader is better than not having a reader, even if some readers earn me more revenue than other readers (even here, we’re talking about fractions of a cent per reader).

What do you consider a more valuable investment in your child’s future: a tutor now or a college education later?
- Jim

A tutor now, undoubtedly. The best thing I can give my child isn’t covering their tuition bill. It’s doing everything I can to ensure that they can actually learn and grow on their own and then ensure that I’m not a burden to them later on.

If a child has the skills to learn and the desire to push forward into self-learning, I’m not too worried about their college career, actually. A child that can push forward on their own will find a way to make it happen.

My responsibility as a parent is to teach them how to do this and instill that desire in them. Thus, my key period as a parent is right now, teaching them how to do this (and getting help if I need it), rather than writing a tuition check later on.

Do 401(k)’s really charge fees? I understood that funds charge fees, but I never realized that the vehicles themselves do. Could you clarify, Trent?
- The Frugal New Yorker

Most 401(k) plans charge rather high fees on the funds you can invest in within the 401(k). 401(k) program fees are usually covered by your employer.

The reason I tend to be wary of just using your company’s 401(k) is that often, a company will sign up for whatever 401(k) plan is cheapest for them. Since the company is out to make money, they’ll get you on the funds themselves by charging high fees there.

Not all companies do this, of course. You should always check the funds offered by your company’s 401(k) and see whether or not they charge high fees. Anything over 1% or so would start to set off warning bells in my head.

I have a question regarding the book Get A Financial Life, which you recently reviewed.

In it the author recommends maxing out your 401k up to the company match, and then investing any additional in a Roth. I am currently putting 10% of my income into retirement with contributions between my 401a and 457b plans. This is 2% over the max contribution my employer provides.

Should I take that 2% and open a Roth, or should I just leave it be? It seems like an insubstantial amount of money to go through the trouble of opening a separate account, but if the benefits are worth it I would have no problem doing it.
- Trey

Whether the effort is worthwhile really depends on how old you are. The younger you are, the more worthwhile it is to make the move.

Why? If you’re younger, you have more years between now and retirement – and that means more years for investment growth. Thus, the decisions you make early on have bigger tax implications at retirement than the decisions you make later in your career.

If you’re sixty, I wouldn’t worry about it too much. If you’re twenty five, I’d definitely get that Roth IRA opened up (I use Vanguard for mine) and start pumping money into it.

Why do you link to such awful articles in your roundup? Some of that stuff is completely in opposition to what you talk about on The Simple Dollar!
- Lily

I don’t link to stuff simply because I agree with it. If I did that, the roundup would be a chorus of echoes – quite boring.

Instead, I link to stuff because it forces me to think and re-evaluate my beliefs and ideas about personal finance, careers, personal growth, and so on.

Sure, I often link to articles I agree with. But almost as often, I link to articles I disagree with. My only criteria for linking is that it makes me think. If I find the ideas crossing my mind later in the day after reading the article, it’s likely I’m going to link to it.

Trent, to what extent does “knowing your audience” affect your blog posts? I mean, you’ve got a pretty niche market- most people I know would consider it some kind of punishment to read through a financial blog “for fun.” So do you pretend to write to the “average adult American” or do you recognize that your audience is typically more financially responsible than the average American, or at the very least, intending to be more financially responsible than the average American currently is.
- Tim

I don’t “pretend” to write for anyone.

I write for several audiences. I write some that are obviously for the longer-term readers, the ones who are pretty skilled in frugality and have their financial lives in pretty good shape.

I write for people who are in the midst of their turnaround and often have a religious fervor about debt repayment.

I also write for people who are suddenly realizing their precarious financial situation and are desperately Googling for help.

I don’t write for people who have no interest in reading The Simple Dollar. On the occasions when I write “devil’s advocate” posts, I’m mostly trying to reach the people who are in that last group, the ones who are rethinking their assumptions about their life and how they spend money.

I’ve got my money in order. I’ve got my cooking skills in order. The one thing in my life that is never in order is cleaning/organization. It’s something I constantly struggle with, the way others probably struggle with money. You seem to have it together in nearly every way … I’m curious what you to do conquer household cleaning and organization, if you care to share in the future.
- LDH

For one, I’m a big believer in “dirty floors and happy children.” Keeping a perfectly clean house comes in way behind spending time with my children. Sometimes, that means the house is a mess, with some dishes in the sink and some toys left out in the living room and a kitchen floor that needs to be swept while I’m out in the yard playing with the kids, but that’s a compromise I’m completely happy with.

I don’t really view it as a struggle. I make sure to keep ahead of the things that are really important, like clean laundry and such, but I honestly don’t sweat the details that much. I make an effort to keep the rooms where guests visit pretty clean so that I’m always happy to have guests over.

I think it comes down to a values thing. Step back, look at your life, and ask yourself how important a spotless house is in the big scheme of things. For me, it’s simply not that high on the importance list.

What type of life would you lead when you finally do retire many years down the road?
- Studenomist

I want to write novels and short stories at my own convenience, when the muse strikes me. The rest of the time, I want to be living on a patch of land out in the country with a big garden and a barn, with perhaps a bit of small-scale livestock (a couple cows, a goat, lots of chickens). I’d like to spend at least some of my time working for some charitable causes, and I’d like to be able to spend several weeks a year living in another country – not hitting the tourist spots, but living in an apartment out in an area far away from the tourists.

That’s the life I’d like to lead. It’s pretty much what I’ve always dreamed of.

It still seems really far away, but it doesn’t seem as far away as it once did. I’m taking steps toward that dream every single day.

I’ve been reading your blog entries for several years now. And this is the first time that I’ve had a question that I’m not sure I can answer on my own. I just graduated from grad school in May, and I’ll need to start repaying my student loans in a few months. The Dept of Eduction is offering a 0.25% rate reduction for enrolling in Checkmate II, their automatic payment program (i.e., they withdraw the monthly payments directly from your checking or savings account). Although the brochure indicates that it’s totally “safe” and “secure”, I’m a bit wary. With a credit card, I know that I can dispute any unauthorized charges. But if they empty my checking account inadvertently, I’m guessing that it’ll be very difficult to convince the bank to reverse the charge. Can you think of any other advantages or disadvantages to setting up automatic payment? Is the 0.25% rate discount worth the risk?
- Jennifer H.

I used this very program for several years with no problem.

It’s in the federal government’s best interest to be as accurate with this as they possibly can. Once an automatic payment has been set up – whether it’s with the federal government or any large business – the cost of them messing up such a payment simply isn’t worth it. It’s a lot more worthwhile for them to build careful, redundant systems that basically eliminate such erroneous billing.

Basically, I trust automatic payments, as long as they’re executed by a business or organization larger than a mom-and-pop shop. Those businesses and organizations execute lots of payments a month, and it’s simply not worth the risk for them to not do it as carefully as possible. It has lower risk, in my opinion, than me manually writing checks or manually doing online bill pay.

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

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26 thoughts on “Reader Mailbag #81

  1. Christine says:

    Trent,

    I’m curious if you’re familiar with do-it-yourself credit repair, particularly for low dollar delinquencies (less than $500). I’ve read that with collection agencies you can write “pay to delete” letters where you agree to pay the entire amount in exchange for them removing it from your credit reports. Have you or any readers had success in removing negative items from your credit report?

  2. John says:

    “That’s the life I’d like to lead. It’s pretty much what I’ve always dreamed of”

    That’s interesting. I’d hate that life. To each their own I guess.

  3. Karie says:

    Jennifer said: “The Dept of Eduction is offering a 0.25% rate reduction for enrolling in Checkmate II, their automatic payment program (i.e., they withdraw the monthly payments directly from your checking or savings account). Although the brochure indicates that it’s totally “safe” and “secure”, I’m a bit wary.”

    I have to disagree with Trent on this one. Just because it’s a big “company” doesn’t mean they aren’t going to make a mistake. A friend of mine had her mortgage payment taken out on a regular basis. Last month they took two and she bounced several checks. She is now complaining to the mortgage company for the “insufficient fund fees” she got clobbered with.

    My suggestion is to set up a separate account for paying the college education bill. That way they can’t get more than what is due to them each month.

    (John, stop being a troll)

  4. Sarah T says:

    I agree about online payments! Print out copies of the agreement docs in case you need them, and read up carefully on their promises about the date they’ll take the money.

    For me, putting my bill-paying money in a separate account was what made it reasonable for me to do online billpay: then I always knew what would come out when and that there would be enough money in there to cover it!

  5. Andrew Weinberg says:

    In response to the first e-mail, from Verne, people always hold vastly differing opinions of which way the stock market is heading. This is what creates a market. If everyone though the market was going to go up, there would be no sellers and if everyone thought the market was heading downwards, there would be no buyers. However, we are at a time where focus on the economy is much greater than average, which is probably why these opinions are getting noticed. Add to this the facts that people are always taking extreme positions in order to garner their own publicity and that news outlets get more ratings from bringing in analysts with differing opinions to argue over which person is right and it is easy to see why you’re noticing so many more disparate opinions.

    Although people who hold these extreme opinions are very quick to tell you how many times in the past they called it right (and before anyone else, mind you), the truth almost always lies somewhere in the middle.

  6. Steven says:

    Auto pay for student loans is great typically because the payment is the same. Therefore, you shouldn’t have any surprises. Granted, you’re only saving ~$25 per year for every $10k in loans, so it’s really more of a gimmick to make sure they get their money back.

    Your typical problems with auto pay occur when the bill changes every month, like electricity or the credit card bill. When you sign up for auto pay, you authorize the company to charge you whatever they want (it’s basically granting them access to your account) and it’s at your expense when something goes wrong.

  7. Des says:

    @Christine

    You cannot pay someone to delete accurate information from your credit report. It is illegal. You can only have inaccurate information removed. Period.

  8. Johanna says:

    I disagree with the answer to Jim. But you knew that already, probably.

    I’ve talked enough, elsewhere, about the issues I have with the “You’re actually doing your kids a favor by stiffing their college fund!” argument, so I won’t go into that now. What I find really puzzling is that the other side of the question – what benefit is a child going to get out of having a tutor? – isn’t even addressed.

    What benefit is a child who’s not struggling in her classes at school going to get out of a tutor? I suppose that if the child is sufficiently motivated and talented, the tutor could introduce her to material beyond or outside of the normal school curriculum. But so could a pile of books, and I’d think that they’d be a lot less expensive. In fact, I’d argue that the best thing you can give such a child is the opportunity to meet and socialize with other similarly motivated and talented children – and that’s the one thing you’re NOT getting when you pay for one-on-one tutorship.

  9. Amy says:

    “Basically, I trust automatic payments, as long as they’re executed by a business or organization larger than a mom-and-pop shop.”

    I agree with your assessment, in part. If it’s a service where you may ever want to cancel the service (gym membership, video rental service, cell phone), I don’t recommend autopay. I’ve heard too many stories about companies not stopping billing after you’ve canceled your account. A friend of mine actually had to close a bank account in order to get Gold’s Gym to stop billing him two years after he canceled his membership.

  10. ross says:

    Jennifer H
    Check out this article at consumerist.com regarding setting up a bank firewall.

    Basically, you open up a separate account with only enough money to pay that bill. So, if they drain it by accident, it won’t really affect you. Kind of like Sarah T (comment #4) does.

  11. Maggie says:

    I have relatives who live in the country with small scale livestock, and it is very difficult for them to get away. I think you would have issues trying to travel abroad when you have animals to care for. It is very different to board a cat or dog vs. please care for my cows.

  12. Emily says:

    As far as automatic payments – they are very easy to stop if they do something wrong. Just call your bank and they issue a “stop payment” against them. As we become more automated and electronic in our payment systems…the banks are finding ways to make it more appealing to customers as well – for many banks not only can your stop payment, they have the ability to stop a prepaid card deduction. I’ve done these for years and have had no trouble.

  13. Lauren says:

    I have automated payments on almost every bill that will allow it — mortgage, cell phone, cable bill, car insurance. I’ve been doing it for years now and have never had a problem. Not saying it couldn’t happen at some point, but the ease of automatic payments outweighs any negatives to me.

  14. Andrea says:

    The department of education has been deducting precisely the same amount from my checking account on the same day (or the next business day if it falls on a weekend) of every month for 11 years with absolutely no mistakes.

    On their part, that is. Somehow I sometimes still manage to forget the deduction is coming. But that’s me.

  15. Debbie M says:

    Whenever I get to record my monthly paycheck in my check register, I also record all my monthly payments, even if they’re not due for two weeks. So I never get that particular surprise.

    I do like the automatic (stamp-free) payments for things with stable amounts that I won’t want to cancel. But then my mortgage has never been removed twice in one month.

  16. Justin B says:

    About the RSS feed.

    I read blogs by rss feed. I will not read a blog that I can’t access that way. If I can’t get the full post on Google Reader I will unsubscribe. So thank you Trent for the RSS feed, I do come to the site regularly because of it.

  17. ML says:

    @Des

    I think Christine was asking about offering to pay collection agencies an amount less than what is owed in exchange for them removing the negative information from her credit report. The collection agencies are pretty desperate given the economic conditions. I would call them and give it a try. However, I would get it writing before I sent a dime to the collection agency (i.e: if I pay X dollars to settle Y account by Z date, the account will be reported as Paid as Agreed/Never late). Collection agencies tend to agree to anything over the phone to get you to send in a payment and then go back on their word once payment is received.

  18. Nicole says:

    To Jennifer,

    I started using the automatic withdrawal with the department of education just over three years ago. If I used the auto withdrawal, my rate went down a quarter percent, and if I made 36 consecutive on-time payments, my rate went down another full percent. Right now, I’m paying 3.5% on my loans. Half of my payment is now going to principle, and half to interest. I’ve never had a problem with the wrong amount being drawn.

  19. cherie says:

    for LDH – I too struggled with cleaning and organization for my whole life – one day, when I was first getting my FINANCIAL life together and conquering that – I realized finally that no matter what I was never hiring a cleaning lady, even if I could afford it LOL.

    I found the Flylady – her system truly changed my life – we’re not fastidious at all but the overwhelmingness of cleaning and organzing is GONE – and it’s amazing! I have three kids and destructopuppy and I can let people in my house when they knock on the door unexpectedly without flinching. Try flylady.net – it’s all free :O)

  20. Katie says:

    “#2 John @ 8:30 am September 21st, 2009

    “That’s the life I’d like to lead. It’s pretty much what I’ve always dreamed of”

    That’s interesting. I’d hate that life. To each their own I guess.”

    Wow, whether you’d like that life or not, someone asked TRENT what he dreams of, not you. Someone else pleasantly pointed out he’d have a hard time getting away with livestock on his property and that was a constructive comment. A slam such as yours only served to make you look like a negative person spewing more negativity.

  21. Karen says:

    Concerning the last question on the Dept. of Ed. student loans, I’d think twice. I have a loan from my master’s program. I continue to take classes to advance on the pay scale at work. Each time I take a class, the college reports that to the Dept. of Ed. and then they defer my payments without consulting me. This has caused me to lose the extra credit I was to receive because of direct/automatic payments from my bank account. I have to call regularly to tell them not to defer my payments. This is such a hassle that I have decided to put this loan as #1 in my snowball pay-offs!

  22. Karen says:

    Have you thought of bumper stickers out of your business card doodles?
    I think they’d look great on my new Prius! (I love my Prius – thanks for the information you shared on your decision to get one. Even my husband likes to ride in it –I haven’t let him drive it yet, he has a lead foot!)

  23. Karen says:

    Katy #20 – well said

  24. Sharon L says:

    One thing about those student loans: save the payoff papers for the rest of your life. Plan to be buried or cremated with them in your hands. If someone enters a wrong digit, you can end up with a real nightmare if you can’t prove you paid the loans off. And try googling Student Loan Payoff nightmare. It is really scary, the scams they run!

  25. bethh says:

    I opted to NOT allow the account holder to auto debit my student loan payments. I prefer to automate the payment from my end, and it’s made it easy for me to increase my payment amounts over time (under 5k left!). Mine did automatically lower the rate after something like 24 months of on-time payments.

    If you still want to allow the process, I think the idea to open a dedicated account for this is brilliant.

  26. As far as the student loans go, I’m enrolled in that program. The nice thing is you can set it up to take from EITHER a checking or savings account. So I set up a sub-savings account at ING Direct just for student loan payments. I always keep at least $10 more than my next loan payment in it. That way, there’s always enough in the account, but they don’t have access to much more money than what the payment should be. It works really nicely.

    One of my other student loans doesn’t let you sign up savings accounts, however. So I just set it up to take from my less-used Bank of America checking account. Again, there’s only enough money in that account to cover the automatic transfers coming out of it. So no messed-up automatic payments can ever bankrupt me. Cause headache? Yes, but not prevent other bills from being paid.

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