Reader Mailbag: Book Club

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. $82 a day for retirement?
2. Wedding photography
3. Passive income
4. Trick for fuel saver programs
5. Value of nice restaurant
6. Frugality and context
7. Mass transit or car purchase
8. Cutting away bad bread
9. Books: Craigslist to yard sale
10. How do people save $20,000?

My oldest son and his two closest friends started a book club that has thrived for more than a year. About once a month, they have a “meeting” where they spend about 20 minutes talking about the book and picking a new one, then they play together for a few hours.

The biggest thing I’ve noticed is that all of the kids are better at understanding the books since they started and their tastes have also become a bit more sophisticated. The books they’re reading now are noticeably more complex than the ones they read during the first session or two.

If you have a child that has any interest in reading, consider giving this a shot. It has really worked out well here.

Q1: $82 a day for retirement?
I read this article that estimated that the average American needs to save $82 a day in order to be able to retire. That adds up to $30,000 a year, which is 60% of the income of a person making $50K. That can’t be right, can it?

- Arnold

That number actually checks out if you’re using all of the assumptions in that article, of which there are many.

It assumes that you’re going to want an income for 30 years out of your retirement. It also assumes that inflation is at 3% and your investments will return an average of 7%. I agree with both of those assumptions.

What I disagree with is that you’re going to need a full average American’s income out of your retirement. For starters, most people’s cost of living drops when they retire as they have less need to do things like eat out, plus they usually have their homes paid for and their automobiles paid for at that point. It also doesn’t take into account how much Social Security will add to the picture.

It also doesn’t explain that the $82 a day is painful right now, but it gets less painful each and every year because that $82 will stay the same while your income goes up with inflation. (When I calculated this, it worked out just fine if you left the $82 alone for 30 years, but everything else rose with inflation.) That $82 will become less and less and less of a piece of your income.

It’s a shocking number, sure, but it doesn’t tell you the full picture. People undoubtedly need to save for retirement, but they don’t need to start saving 60% of it with 30 years to go.

Q2: Wedding photography
I am really torn on the issue of wedding photography.

My fiance and I have a friend who is willing to do all of the photography for free, including prints. It’s an amazing gift, but she’s only a semi-pro. She doesn’t do it full time.

Several of my friends have gone with a photography business in the area that does some amazing photos. I’d feel more confident that the pictures would be great with the photography business.

What would you do?
- Annie

The first thing I would do is look at the work that your friend has done for other weddings – or, at the very least, other shots of people. Are those photographs good?

If she’s done good work, then I’d take her up on the offer.

Don’t make this decision based on what you think it might be like. Look at her actual work before making the call.

A final note – Sarah and I very rarely look at our wedding pictures. Looking back at our wedding, I don’t think anything would have been disastrous if we had used a semi-pro photographer.

Q3: Passive income
Could you do a “personal finance 101″ explanation of what passive income is? I feel like I’m missing something.

- Tom

Passive income is income generated without any additional work from you. Generally, it requires a lot of time and/or effort and/or money invested up front to generate passive income.

For example, you might invest $10,000 in stocks that pays dividends of $80 per quarter. You don’t have to do anything but collect the checks, so this is passive income.

On the other hand, you might write an ebook and have it placed in the Kindle store. Once it’s written, you don’t have any additional work to do, but you’ll earn a trickle of income from the book. The same is true for real books, websites, music recordings, Youtube videos, and so on.

It can be a great idea to invest your time and effort into building passive streams of income, but many people aren’t willing to invest tons of spare time into something that isn’t fun or isn’t paying a big return quickly (like a paycheck for work performed).

Q4: Trick for fuel saver programs
I was reading your Reader Mailbag article from 04/14/14, and saw the question regarding the Fuel Saver programs. I wanted to share what I’ve figured out regarding those, in case it might be helpful for you or others. Feel free to share this, in part or in full, if you agree with my conclusions and feel it’s worth sharing.

As you said, the way some of these programs work (including Hy-Vee’s), there is a list of items each week that, when bought, are worth a discount on your next purchase of gas at Casey’s or Hy-Vee Gas. The trick to using this program effectively is to figure out, on average, how many gallons of gas you put in your car each time you fill up, up to 20, then calculate how much money you’re saving off your next gas purchase by buying that item. Then, subtract that amount from the price of the item, and decide if that’s a good price or not. The reason to do it this way is the amount you drive won’t change just because of a few cents per gallon discount on gas. That means that, even though the discount technically applies to your gas, it really applies to the item that you choose whether or not to purchase.

For example, several months ago the brand of taco spice I buy was on sale for $0.79, with a Fuel Saver of $0.02 per gallon. Since I buy 16.5 gallons of gas on average when I fill up, each packet of taco spice I buy will save me $0.33, making the effective price for the spice $0.79-$0.33 = $0.46. That’s the cheapest I’ve ever seen it, and it stores well, so I bought a dozen. My wife said I was crazy. Crazy like a frugal fox, I say.

Also, it’s worth mentioning that sometimes they will do the Fuel Saver on certain gift cards. Like a $25 Olive Garden or Home Depot card, with a Fuel Saver of $0.10 per gallon. If you’re planning to go to one of these places anyway, that’s $0.10 * 16.5 = $1.65 of free money.

It does take a little extra number crunching, but sometimes there are good deals to be had if you use these programs right.
- Donald

Here’s the original question that Donald was referring to.

Stacking sales along with the fuel saver discounts is a really good idea. I usually multiply the fuel saver discount by 15 when I calculate it because I’ll hit that gas station once a month to fill up the SUV.

There is one catch – the gas station that provides the discount, Casey’s, isn’t always the cheapest one around. I typically fill my tank at Sam’s Club, which provides gas that’s as much as a dime a gallon cheaper than Casey’s. So, I usually stack my Fuel Saver discounts and hit Casey’s once a month, usually on my first fill-up of a calendar month.

Q5: Value of nice restaurant
I hope you can offer some insight into a debate my husband and I have all the time. Whenever we go out for dinner, he wants to go to a place that’s basically a truck stop. It’s cheap, but it’s run down and the food is really basic and kind of bland as you have to put a lot of salt and pepepr on it. When we go out, I’d rather go somewhere nicer. Yes it’s more expensive but why go out for something you can make blindfolded at home?

- Sandra

I think you both have good points, actually. My guess is that your husband probably feels far more comfortable at the “truck stop” restaurant and that’s why he wants to go there. I certainly can understand the appeal of a place where you feel just fine going in your most casual clothes. In fact, Sarah and I used to eat at a truck stop pretty often when we were in college.

It comes down to why you eat out. For you, it’s a special occasion. For him, it sounds like it’s just another meal. If you look at it that way, the differing perspectives make sense.

I think the best thing you can do is just talk about that rather than the expense of it. If you can both understand what it is you each get out of restaurant visits, compromises might make sense.

Q6: Frugality and context
I post a lot of money saving tips to Facebook. They usually all get a bunch of likes and comments. Recently I found out that some of my “friends” had been making fun of some of them and it rather hurt. Not only that, I don’t get the point. If you don’t want to use a tip why not just ignore it?

- Dana

Frugality makes a lot more sense with context. Without it, frugality can seem weird at times.

The whole idea behind frugality is that you’re choosing to spend less on some things so that you can spend more on other things. For example, you might choose to spend less on household products so you can spend more on retirement savings.

When anyone shares a frugality tip without context, it loses some of the purpose. Someone else might just see a drastic cutback on some element of household spending. If it’s something that they do – and something they get personal value out of – it can feel like a personal criticism of what they’re doing.

For example, let’s say you take a ton of pride in keeping your kitchen immaculate. You buy the best products so you can have a gorgeous kitchen because that really, really makes you feel good. That’s cool by me. If it makes you genuinely happy and that happiness lasts, that’s great.

Then, a friend of yours posts an article about how you can clean windows pretty good with spray vinegar. That can feel like a criticism of something they value, even if that’s not the intent at all.

Over the years, I have been called countless names and been ridiculed in ways you can’t imagine for posting frugality tips. It happens. If you have a certain way of doing things and someone else jumps in and shows another way of doing things that somehow implies that their way is “better,” it can be insulting, particularly if you can’t see any benefit in the other way. If you really care about your kitchen, for example, and people are lauding your “great” way of saving $1 on window washing cleaner that doesn’t do the perfect job you want, it can seem frustrating. If you post a tip that takes an hour or two to pull off and someone has absolutely no free time, it can seem frustrating to them.

Just let it go. Some people have a good enough filter to ignore the tips that don’t apply to them. Other people are glad for the tips you provide. The rest? Don’t let it bother you.

Q7: Mass transit or car purchase
I’m in East London, South Africa and follow your articles and advice online.

I’m 31, married and have three daughters. I accumulated a lot of debt over the years which I’m still paying off some of it. I have been promoted at work and earn enough to manage my debt and take care of my family. My wife also works and also has debts she’s paying off. We just started saving a fixed amount each month. It might be little but its what we can afford.

I want your advice on buying a car as we don’t have one and rely on public transport. In SA public transport is a pain and not convenient at all. I’m skeptical about taking another debt but at the moment its the only way I can afford to have a car and due to my credit record the interest rates being offered are slightly higher than average. Between me and my wife we spend R3,000+pm on transport which is well above a possible installment on a reasonable used car.

My problem is that debt has disorientated our lives and we’ve had to go through some of the most embarrassing and lowest moments of our lives hence I’m reluctant to fully go for it.
- Carl

Right now, you’re essentially making a bigger payment to the mass transit authority than you would if you were making payments on a car. You have to make some sort of payment in order to be able to commute, so make the smallest one you can.

The thing is that once you’re done paying off the car, you need to immediately start saving for the next one so that you can just pay for it in cash when you actually need it. That way, the interest you earn from savings works in your favor, rather than the interest on a car loan working against you.

I’d get a cheap car on a loan, pay it off as fast as I could, and start saving for the next one.

Q8: Cutting away bad bread
What do you think about things like cutting out pieces of bread and using the rest of the loaf? Or cutting off bad parts of cheese and using the rest?

- Jeremy

Generally, this is a poor idea. The mold you see on the surface is only part of the picture, as tendrils have usually spread somewhat through the inside of the bread or cheese. There’s also the issue of uncertainty as to the type of mold, as some molds are harmless and others are… very much harmful.

If you’re a microbiologist and know what you’re doing, I won’t question it, but if you can’t identify the mold for certain, you should toss the whole thing.

What about blue cheese, for example? That’s a situation where a microbiologist has put a very safe mold into the cheese as part of the manufacturing process, so I wouldn’t object. (I actually find it tasty.)

Q9: Books: Craigslist to yard sale
I just wanted to share a success story. A couple of years ago, I bought a large collection of books off of Craigslist. There were many good books in there that gave me plenty to read for a couple of years. A few weeks ago, I put almost the whole collection out for a yard sale, pricing the books at $1 each and then dropping it later to $0.50 each. I sold about half the books, but I ended up making more money than I bought the book collection for. Not only did I entertain myself for two years, I profited! I took the remainder to Goodwill and got a receipt that I can use on my taxes, too!

- Angie

While this kind of thing is never a guarantee, I will say that I know many people who do this very thing with books. They’ll pick up a book at a yard sale or somewhere else, read it, hold onto it for a while, then put it in their own yard sale, recouping the cost.

As for book collections, I see them pop up on Craigslist every once in a while. I even considered buying one a while back, mostly because it was loaded with books from a few series that I enjoy, but the collection was gone when I called.

I tend to only keep books if I’m sure I’m going to reread them a lot. Even if I think I might just reread it once, I’ll still not want to hold onto it – that’s what the library is for, after all!

Q10: How do people save $20,000?
Seriously. How do people save $20,000? Or $30,000?

I read your Simple Dollar Blog daily and try to take your advice into account when making spending decisions and our monthly budget. Reading your advice and the mailbag entries sometimes feels defeating though. I try to remind myself that each letter doesn’t always detail the persons exact debts and doesn’t tell the story of how they amassed this wealth.

But honestly, even if my husband and I cut out everything (phones, cable, shopping etc) we still couldn’t save more than a few extra dollars a month.

So I wonder – how do these people do it?
- Carol

Let’s say you’re currently breaking even. I don’t know if that’s true, but I’ll assume that it is.

Now, let’s say you dropped your home phone line and relied only on your cell, saving you $30 a month. You also decided to cut out your cable and subscribe to Netflix instead, saving you $40 a month. Let’s say you also managed to scrounge up $30 a month from other savings. There’s $100 a month.

You put that money into your retirement savings where it earns an average of 7% per year. You’re there in 11 years.

This is assuming you find no other way to save more money and no other way to earn more money.

Now, let’s say you decide to take on a part time job working 10 hours a week. You bring home $80 a week from that job and add all of it to your savings. With that additional money, you’ll be at the $20K mark in three and a half years.

It doesn’t take much saving or much additional income to make a huge difference in your life if you actually commit to socking away the money you save or the extra money you earn.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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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