Reader Mailbag: Bedtime Stories

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. More miles from used car?
2. Is real estate best investment?
3. Unsure about first retirement steps
4. Older personal finance books
5. Figuring out wedding expenses
6. Best tablet for the buck?
7. Senior year college finances
8. Selling old car?
9. Discouraging excessive gifts
10. Fiance spending concerns

Most nights, when I put my children to bed, I make up a bedtime story for them.

At the start, I’ll start asking them each a few questions. What kind of animal will be in the story? Will the story be funny or scary or an adventure? What does the heroine have in her knapsack?

I usually also try to figure out some sort of general moral for the story – a lesson my kids will get out of it if they think about it a bit. I try not to be too heavy-handed with the story.

After that, my goal is to make it up as I go along. This really pushes my storytelling abilities, because I try really hard to make the story interesting and entertaining for them. If I can hold the attention of a three year old, a five year old, and a seven year old for twenty minutes with the same story, then I’m telling a good story.

I was very bad at this when I started doing it a few years ago. Now, I’m good enough at it that my children would far rather hear a made-up story than one from a book, though I still read to them as well.

Bedtime is my favorite part of the day with them, I think.

Q1: More miles from used car?
I found your analysis a bit short as I didn’t understand why you assumed one could drive the older cars for more miles than the new car (i.e. 250,000 or 225,000 instead of only 200,000). My assumption would have been equal mileage for all 3 but that math gets the new car down to the old car costs. You just don’t like new cars or were you afraid of taking a position contradicting all of those saying new cars are bad investments? I think a more useful comparative analysis would have used the cost of driving per mile driven over the life of the car, which is something I typically try to ballpark when making a new versus used comparison.

– Andrew

Here’s the scoop. All cars, when they come off of the factory floor, have a “bell curve” of their life spans. Some will be worthless at the 100,000 mile mark. Others will live well past the 300,000 mile mark. The average will be somewhere in the middle.

The ones with the low mileage are lemons. There were a few too many flaws in the car’s construction and it just doesn’t last.

When you buy a used car, one that passes muster with a mechanic, you’re likely buying one of the ones that wasn’t a lemon. This changes the average. You’re cutting off all of the cars with a total mileage under 100,000, so the average of all of those cars of that model goes up. Thus, if there was a car model that averaged 150,000 miles and I bought a used car of that model that was already at 100,000 and passed muster with a mechanic, I’d expect it to go to 175,000 or 200,000 at least, as that would be a reasonable average of all cars of that model excluding the lemons.

Now, if I’m buying a new car of that model, I might expect to get 150,000 miles out of it. On the other hand, if I buy a used car of that model with 100,000 miles on it, I would probably expect only to get 75,000 or 100,000 more out of it. I expect the total miles of a car that I bought used to be above average (assuming I had it checked with a mechanic), but I would expect the remaining miles on it to be substantially lower than a new car.

Q2: Is real estate best investment?
Isn’t real estate the best investment there is? You can buy it, people will pay you rent for it, and when you sell it it’s worth more. Plus land is a tangible real thing unlike a share of stock for a company.

– Larry

There are a few problems with land investments. For one, they’re rather illiquid. You have to have a buyer ready to go in order to be able to sell it. There are far more buyers on the stock market, for example, so you can almost always quickly sell any share you have, and with a bank account or something similar, you can just withdraw money as you like.

For another, they’re susceptible to the ins and outs of the local real estate market. If it’s a hot area, the price will go up. If you buy a chunk of the new Love Canal, the price will go down. Excluding weird events like the stock market bubble, the price will usually go up slowly over time, but there’s risk.

You can, of course, rent land and property you have, but that assumes you have someone willing to rent and someone that will maintain the property. If you rent a house to the wrong person, you may find yourself with a damaged house, for example. If you can’t find a renter, you have a house that just sits there.

On top of that, real estate has property taxes involved, which really eats away at your earnings.

Real estate can be a good investment, but it’s not the be-all end-all.

Q3: Unsure about first retirement steps
I make 25 thousand a year and raised three kids on under 500 a month in child support, Now that my last is 16 and getting 200 a month in cs, I would like to refocus my monies on my retirement. I have an IRA Roth for 7,223.50 with moderate stocks. I also have a 401K from a previous job of $731.67 that I need to turn into an IRA, then into the Roth. I also am currently contributing to a new job of $60 per month to a 403B Plan that does not match. These amounts are pennies and I have not focused on ME until now. I don’t feel comfortable putting monies into the 403B less there is a match.

The last two years I focused on getting a living will and trusts set up for the kids and feel good about that. However, I now am wondering about the term insurance I have and need to ask you about turning that into my retirement, also instead of giving and giving to my kids. They will be adults very soon and will be fine on their own…while I will still be broke nearing retirement.

I would like to get aggressive:

Put my contributions of my new job into something that is small caps, international or something with high return for 10 years. I will be willing to contribute $300 total a month to this. I did a calulation and might earn $1070 month for SS at 70, and will also have a retirement at the rate I am going now…but will run out at age 78. Not what I wanted to see.

I will not lose sleep and check the market everyday when I hear a drop. I will check it every year.

I don’t know how to do what I would like and I don’t trust anyone right now – since I have gotten three different answers. One said annuities is the way. I know better, I worked for an insurance company. Also, I was told to invest my new monies in Jackson National Elite Access – a AAA rated company. Then I was told to put 50% in lrg cap, 20%in Mid, 20% in small and 10% international.

I was also told it doesn’t matter if I use IRA or Roth, the Roth is tax free in the end, but the Traditional is taking out in the end and turns out the same amount total tax when apples to apples…..
– Joan

It does matter whether you use an IRA or a Roth unless you believe both the tax rates and your income level are going to be exactly the same in 40 years as they are right now. Do you believe that? If you do, I have a bridge to sell you.

My guesses would be that your income will be a bit lower, but tax rates will be substantially higher. Given that, I think having at least some of your money in a Roth IRA is a wise move, but it need not all be in a Roth.

As for balancing specific investments, if this is going into a retirement account, I would look seriously at a target retirement fund, particularly one from a company with a good investment philosophy like Vanguard. Target retirement funds self-balance, meaning that now they’re very aggressive, but as their target date approaches, they get much more conservative.

Q4: Older personal finance books
How old does a personal finance book have to be before it becomes outdated? If I see one at a yard sale how can I know it’s still worthwhile?

– Fred

I think the basic principles of personal finance are the same as they were during Benjamin Franklin’s time. Spend less than you earn. Avoid debts and if you have any, eliminate them. When you have some money in your pocket, do something with it so that the money is working for you.

It’s the specifics that change over time. Specific investment advice from Ben Franklin’s time is useless to everyone today (except for historians).

If you are trying to learn the principles behind things, personal finance writing can be timeless. If you’re looking for specific investment help, then you should stick with very current materials.

Q5: Figuring out wedding expenses
I am recently engaged and beginning the process of gathering price quotes for a wedding and am flabbergasted by how much everything appears to cost. Part of me feels that the focus of modern weddings is not about the enjoyment of the couple, but rather throwing a big party to flaunt “wealth” and impress everyone you know. I really want to throw a small, intimate backyard ceremony with a barbecue and yard games to follow, but because of limited space, parking, and, restrooms this would mean not inviting some relatives and friends who “expect” an invitation. I’m afraid if I go down this route I will (1) alienate some people who are important to me and (2) possibly regret that I didn’t follow the social norms of a tradition wedding and reception for this “once in a lifetime” event.

I always find your perspective enlightening and would appreciate your thoughts on any or all of the following questions:

As you look back on your wedding, what were the most important aspects of your big day?
What expenses would you splurge on and where would you cut back?
Do you wish there were more or fewer people?
Do you really think professional wedding photos are worth thousands of dollars of investment or will less than professional quality taken by a family friend get the job done?

– Charlene

The most important aspect of our big day was the people. When I look back on that day, that’s what I think about. I barely remember the decorations or the music or anything else. I remember a room full of people that I cared about and who cared about my new bride and I.

If I had it to do all over again, I’d probably eliminate the photographer and the DJ. I would have had friends take care of both of them. They offered to do this and I turned them down for some silly reason, wanting a professional. I feel like we were pretty frugal on everything else – we (along with some of our family) made all of the food and rented a very inexpensive location for the reception.

Given the high quality and usability of many consumer level DSLR cameras, I think that unless you’re employing a very high end photographer, you can likely find someone you know who can take high quality photographs of your wedding.

Q6: Best tablet for the buck?
I am planning on buying a tablet computer for my wife. The computer we have takes up a bunch of room and she just uses it to read Facebook and maybe send an email once a week or so. What tablet would be the best bang for the buck for her?

– Leonard

The best tablet “bang for the buck” is probably the Kindle Fire. It does a very good job of handling the exact tasks that you name for a pretty nice price.

The Google Nexus 7 is also another good choice at a pretty good price. It’s a bit better than the Kindle above, but a bit more expensive.

I consider the iPad and iPad Mini to be the best tablets out there, but you’re going to pay more for them and you can argue all day long whether the price difference is worth the difference in quality. Some will say yes and others will say no.

I’d probably just stick with the Kindle Fire.

Q7: Senior year college finances
I am approaching my 4th year in college and I am worried about my financial situation. The house I am moving in will cost me $520 per month for rent alone. I start payments this month. I have an on-campus job that I am looking to continue, but it pays minimum wage and takes payment off for breaks, food, and taxes. It was barely enough to pay my rent last year, which was cheaper than this year, and I feel as if it won’t be enough this year. They do give out bonuses every semester, but it’s only $300, which is just enough to pay for textbooks. On top of that, I pay for my own tuition every semester because my parents are in a financial bind. In addition, I got denied for loans last year. Do you have any advice on how I should approach this upcoming year?

– Jeff

If you’re renting a house and you’re in college, the obvious solution here is to find more roommates. The more people you have living under that roof, the smaller your share of the rent gets.

You should also be taking serious advantage of the fact that you’re living in a full house and eat at home at every possible opportunity. Eat as inexpensively as you can and split meals with others to get it even cheaper.

You should also look for any opportunity to pick up a few additional hours of work per week. Even 10 hours a week at minimum wage will bring home another $70 a week for you, which can make the difference here.

Given that you’re “locked” into a lease and into attending college this coming year, those are probably your best options.

Q8: Selling old car?
Aside from sticking a sign under the windshield, what’s the best way to sell an old car? Are there any good ways to sell online without costing too much?

– Dave

I’d start with Craigslist, as you can add a listing there and reach a huge audience very easily. That’s probably your best online option.

Since you’re selling this yourself, I encourage you to be very careful here. Don’t accept things that seem suspicious, such as cashier’s checks. Make sure that the funds are available and in place before you transfer the title.

When we bought our SUV off of Craigslist, we met at a bank to do the transfer. Everything was handled there all at once, from the title transfer to the payment. It went as smoothly as could be. That’s how I’d recommend doing it.

Q9: Discouraging excessive gifts
My in-laws tend to equate love with money and gifts, and the size of the gift matters more than the idea. My son’s grandmother was walking through a toystore with my son and asking what he’d like for his birthday, and when he pointed out a small Lego set, she told him it wasn’t big enough. (!) So there are huge event-sized gifts at nearly every opportunity year-round. My wife and I tend to give a very few special gifts at birthdays and Christmas, but my in-laws tend to think that any reason (Thursday!) is enough for a huge gift.

I can’t convince them that simplicity and frugality are good things, and their intentions are good. So how can I convince them to stop laying huge gifts on my kids aside from their birthdays and Christmas? I’d also take any suggestions on how to limit gift-giving (in terms of number of gifts) for those events, if anything leaps to mind.
– Andre

You can’t stop them, unfortunately, without inserting a wedge in the relationship. You can ask them until they’re blue in the face, but they’ll still do it. I’ve seen this myself.

Remember, though, that you’re the one setting the values at home, not them. The grandparents might do some spoiling, but they’re not involved in the everyday cycle of the lives of your children. You are. It’s your job.

Make sure that they understand that the grandparents are the exception and not the rule and things will be fine.

Q10: Fiance spending concerns
I’ve been dating a widowed man for about a year now. I love him dearly, but I’m worried that he spends too much on his children. He’s definitely giving them a lot of “economic outpatient care.” One of them is graduated from college (which dad paid for) and gets about $1,000 a month in help. The other one is in college (again, all paid for by dad) and he gets about $500 a month in spending money along with lots of clothes and a laptop and lots of other stuff. Should I be worried about linking my financial life to this?

– Jennifer

It really comes down to him. Does he intend to continue this type of economic outpatient care indefinitely? Or is it coming to a close when they get employed?

He is doing them a disservice by doing this if they’re also employed. I’d argue he’s doing the older one a disservice by doing it at all after graduation. You don’t make things “easier” by doing it – you set them up for disaster when the money train is no longer there.

The only way to figure this out is to talk to him about it. If he intends to continue this forever, I would be wary about jumping into the relationship.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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