Reader Mailbag: Changing Brand Quality

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. IRA or 401(k)?
2. Careers with perks
3. Estate auction question
4. Book for early twentysomethings
5. Selling collectibles to a friend
6. Ending whole life insurance?
7. Low-income long term care
8. Why recommend Netflix?
9. Youtube and musicians
10. Printing costs for coupons

Whenever I get a new issue of Consumer Reports, I read it cover to cover. It’s something I’ve been doing for years.

Still, it’s not hard to notice that they repeat article types every so often. Some of them are annual, like car reports and cell phone reports and so on, but others recur only every few years. At this point, I’m mostly re-reading articles I’ve read before.

Why re-read them? It’s all about the specifics. Brands change. So do specific models. The comparative quality and bang for the buck of almost everything you would have found in a department store or a grocery store ten years ago is different today.

The brand you’ve always trusted might now be superceded by something else, or the company involved might have actually changed the brand you use, making it work better (or worse) than before. This changes the “bang for the buck” for your purchases.

It’s frustrating, but with consumer products, you can’t keep buying the same product forever and always expect the same results.

Q1: IRA or 401(k)?
My spouse’s company is moving to a new 401k plan next year. The fees aren’t good, but aren’t horrible either (~1% surcharge above standard fees charged by mutual fund managers to IRA accounts). The company doesn’t match her contributions and we make too much money to deduct IRA contributions or contribute to a Roth IRA. We plan to invest more than the maximum non-deductible IRA contribution. How would you recommend that we prioritize our investing? (I.e., all through 401k; max to non deductible IRA, then remainder to 401k).

- Jim

Your best game plan, from my perspective, is to contribute to the traditional IRA first with the intent of eventually converting it to a Roth IRA. This is informally called a “backdoor” Roth IRA and is explained well here. Doing this as quickly as possible enables you to enjoy a long period of growth on this money tax-free once you’re through the initial tax bumps.

It is well worth noting that this works best if you don’t have other traditional IRAs already – if you do, things are going to get messy quick and you may want a tax specialist to help you work through this.

If that ends up being too messy for you, then just using the 401(k) is likely a solid solution. As you said, the fees aren’t great but they’re not a trainwreck either.

Q2: Careers with perks
I applied to attend seminary and I’m pretty sure I am going to be accepted. I wish to become a pastor, which will take four years. My parents are opposed to the idea mostly because they view this career as having low pay and they’ve showed me the salaries of some pastors in the area and they all make only $30K-40K. However, each of them has a parsonage to live in cost free and they have a lot of other expenses paid for by the churches too (lots of meals, a cell phone, a laptop, etc.). With those expenses covered it seems like being a pastor doesn’t have to be a financial dead end. What do you think?

- Brad

It is often hard to compare careers based solely on salary because, as you mention, some careers offer perks that others do not. Pastors might not seem to receive a strong compensation package compared to the years they’ve put into training, but, as you mention, their positions often offer quite a few perks.

If I were you, I’d make an effort to establish the full value of the compensation packages you might expect in this career. Talk to a few pastors in your area and get an assessment of what kind of perks they get, then use some property value estimators to figure out what that is worth. Remember, if you’re allowed to live in a $120,000 home without paying rent, it’s comparable to not having to make payments on a $120,000 mortgage (at least, the interest portion of that payment). If they provide a cell phone, that’s a monthly bill you don’t have (that potentially adds up to $1,000 a year or more).

This can really start to add up as you figure in the perks. Of course, it’s not just this career path that has perks, but such perks are worth considering when thinking about it as a career path. In order to make this a real discussion point with your parents, though, you should calculate these elements and come up with a tangible number.

Q3: Estate auction question
Aside from a few small personal items, my mother has decided to have an estate auction for all of her possessions and allow her children to split the proceeds after she passes. There are several items that all of the children want, but we don’t want to get into a bidding war. How can we do this reasonably without fighting?

- Adrienne

You can sit down and discuss this with your siblings, where you identify some “hands off” items for each of you to bid on without your siblings bidding. One way to do this is for each of you to make a list of five or so items that you want the most, then sit down together and discuss them.

Still, it’s likely that there are going to be some items that you’re all going to want and it’s going to come down to bidding. Try as hard as you can to keep emotions out of this. It is because of your shared experiences and your relationships that so many of you want this particular item, so if you can’t afford to get it, let it go with love.

It’s also important to remember that every high bid increases the money you’ll all receive at the end of the auction, so, to some extent, you want the items to sell high.

Just don’t get upset with family members for wanting the same items that you want, even if they’re willing to spend more money to get that item. In the end, you want those things for the same reasons. The feelings you have for that item are likely very similar to the feelings your siblings have for that item.

Q4: Book for early twentysomethings
What would be your suggestion for a book to get early twentysomethings that would be simple and easy to understand yet motivate at the same time?

- Diane

It depends on the early twentysomething. If that person is a freshly-minted college graduate, I’d recommend Michael Masterson’s Automatic Wealth for Grads, which is my pick for a book for people transitioning from college to the workplace. It just does a great job of meeting the needs of that group.

As a more general purpose selection, I’d look at Michael Mihalik’s Debt Is Slavery, which is an easy and short read that packs a real punch when it comes to the key lessons of personal finance.

Some readers might also like Suze Orman’s Money Book for the Young, Fabulous, and Broke. The title alone makes it clear that the book appeals really well to a certain demographic. If the title would appeal to the reader, it’s probably the best choice.

Q5: Selling collectibles to a friend
I was cleaning out my parents attic with a friend recently when we came across a few boxes of my old stuff from my childhood. We went through it and we found a box with some cards and other stuff in it. My friend leafed through it for about a minute and said, “There’s some good stuff in here. I’ll give you $500 for the box.” I told him sure without thinking about it. He left the box with me while he went to get the $500 and so I poked through it and found that there were some cards in there that were worth at least $100 individually on eBay. He came back with the $500 and I told him the sale was off and he got rather upset with me. Suggestions on what I should do?

- Eric

Honestly, my feeling is that if this person was a close friend whose friendship you value – and given that this person was helping you clean out your parents’ attic, this person is probably a pretty good friend – you should have stuck by the initial agreement. Sure, that friend might have been trying to lowball you a bit, but you could have also said “no” to the initial offer.

If you’re not going to accept that offer at this point, you need to have the cards properly assessed. Since you know how to price the items via eBay, I’d price out the collection in detail, figure out what you could get for it on eBay, then subtract out the time, effort, and shipping expense involved, because that would represent your true return.

If that number blows away what your friend offered (by several hundred dollars at least), that person might have been trying to strongly lowball you, which isn’t a good thing to do to a friend. If your estimate is fairly close to what the friend offered, then you made a mistake here, not just financially, but socially.

Going forward, it’s best to never agree to an offer like this from a friend without following through on it.

Q6: Ending whole life insurance?
My parents bought me a whole life insurance policy when I was a baby. I am now 26 and they’ve asked me to take over the monthly payments on the policy. I do want to have life insurance so I am trying to figure out whether it makes sense to just cash out the whole life policy and switch to a term policy or stick with the whole life policy.

- Victoria

It depends on the whole life policy. At this point in the game – 25 or more years after the start of the policy – many whole life policies have a pretty solid annual return. My experience with such policies is that they tend to not earn very well for the first ten or twenty years, but then their cash value grows at an impressive rate after that.

Usually, I don’t find it worthwhile for a new life insurance buyer to spend those twenty years waiting for the policy to really start returning well, but at this point, it’s a sunk cost. You have to look forward from this point, not backward.

What you should do is get a quote on a term policy, then sit down and take an honest look at what you’re actually getting per year from each policy. The whole life policy will likely have higher payments, but the value of the policy may have reached a point where the growth of the value makes the extra cost worth it. If it’s growing at an annual rate that’s significantly more than the difference between your annual premium and the quoted premium on the term policy, stay put. If it’s not growing that fast, I’d cash out and switch.

Q7: Low-income long term care
My mother-in-law is currently living with my husband’s brother. She recently fell and now needs someone to stay with her full-time. She only has aprox $640 a month from Social Security to live on therefore assisted living is not an option in her area, plus she does not want to go. Do you know of any agencies that may help with her situation? My brother-in-law cannot afford to quit his job to stay with her and neither of us can afford an “adult sitter” to come in.

- Sandra

The first thing you should do is get ahold of the Department of Human Services in your state. Depending on your state, they may redirect you to the office for your county. You can do this by doing a Google search for “Department of Human Services” followed by your state name.

The people at this office will walk you through figuring out your mother’s eligibility for programs like Medicare and Medicaid, which are likely her best options for care at this point.

Good luck. This is a very trying time for both your mother and all of her children (you included, of course).

Q8: Why recommend Netflix?
Why do you recommend Netflix? Doesn’t Amazon Prime Instant Video make a lot more sense as a package?

- Eddie

Having extensively tried both Netflix and Amazon Prime, I find that Netflix is better purely as a video streaming service. The program selection is better than Amazon Prime Instant Video. Having said that, Amazon Prime Instant Video does have a very extensive video library that’s going to give you more than enough stuff to watch for a very long time.

The kicker with Amazon Prime is that you get the other perks of the service. One of the biggest perks is that a large portion of items you can order from Amazon.com now have free two day shipping with no minimum purchase to qualify.

The annual cost of Netflix is $96, while the annual cost of Amazon Prime is $80. I consider the advantages of Netflix – from a strictly streaming video perspective – to be worth the extra cost. For people who don’t really use Amazon very much, Netflix is probably the better deal. However, if you buy quite a few items from Amazon or use a Kindle, the Amazon Prime package is probably better.

Q9: Youtube and musicians
I appreciate it when you share videos of musicians during your ten pieces of inspiration posts. I have wondered if the musicians are compensated somehow for those videos. How does that work?

- Amy

It varies a lot.

In some cases, the musicians themselves – or their record companies – place the videos on Youtube and often accompany them with an ad to earn some revenue. This earns a fairly small income for the musicians, but it is a great way to promote their performances.

For older recordings, particularly classical ones, the recordings are often taken from recordings made by companies that no longer exist or by nonprofit organizations or they’re in the public domain, in which case either they’re presented ad-free (meaning no one makes money) or the person who uploaded the recording gets the ad revenue.

Sometimes, people do pirate recordings owned by other people and put them on Youtube with an ad attached to earn revenue for themselves on the back of the work of others. I don’t like that, but it’s often hard to tell what’s what on there, especially with old recordings. Youtube does a pretty good job of automatically detecting copyrighted material, particularly if the owners of the copyright work with Youtube to find them. In the end, you have to rely on that a fair amount to be sure that the things you’re linking to are okay.

Q10: Printing costs for coupons
In several of your articles, you’ve mentioned printing things out to bring to stores, like coupons or prices, in order to get the best deal. In principle, this seems like an easy way to save a few dollars each time you go shopping. However, have you considered the cost of printer ink, and to a lesser extent, paper? Given that ink is so incredibly expensive, does it really make sense to print out coupons every week to save a marginal amount of money? On the other hand, do you have any suggestions for finding ink cheaply to make these other cost-saving measures more useful?

- Larry

If you’re using a full sheet of home printed paper to print a single $0.25 coupon, it’s probably not worth it. Most estimates I’ve seen give the cost of a single sheet printed at home on cheap paper to cost around $0.20, so one cheap coupon doesn’t really get you ahead.

Many online coupon sites avoid this by allowing you to pack several coupons on one sheet, often based on the coupons you select. This enables you to print eight or so coupons on one sheet. Even if they’re all $0.25 coupons, that still adds up to $2, making the printing worthwhile.

Many stores also accept coupons displayed on the screen of mobile devices and many coupon services offer mobile apps to do just that. You’ll want to check with your store first to make sure this works, but it’s one way to avoid the cost of printing.

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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  1. Anna says:

    As a pastor, I’d like to speak about pastors’ compensation and other parts of the decision.

    First, obviously, the money should not be the primary consideration for or against being a pastor. (But I’d say this is true of most careers, and one of the reasons for being frugal is so that you can pursue a career that is your calling even if you could make more money somewhere else.) Why are your parents concerned for you? Do you already have debt that would be difficult to pay off on a low salary? Are there other reasons (for example, a spouse who wants to stay home with the kids) why a lower salary would be a problem for you? In my experience, people are often weird about pastors’ salaries. First, there are people who think pastors get paid peanuts and are kind of snobby about it. Then there are people who think that pastors get paid way too much–after all, they only work one day a week, right? (Ha. Ha. Ha.) The truth is somewhere in between.

    Here’s where I am: My salary is in the bottom range of those listed. But my church completely covers my health insurance. And pays into my retirement fund. And pays for my cellphone. And miscellaneous other things that, when added up, put another $10-15k on top of the base salary. This does not count living in a very nice 4-bedroom parsonage with no housing costs except gas to mow the lawn with–and I didn’t have to buy the lawnmower. I don’t pay rent, I don’t pay maintenance, I don’t pay utilities except internet and (before I switched to Netflix) cable. What it boils down to is that if you add up my salary and all benefits without including housing, I make the US “average” income. But unlike the vast majority of people with similar incomes, I don’t have to pay housing costs out of that income.

    Of course, pastors’ salaries vary widely depending on area, type of congregation, and what denomination they’re part of. YMMV.

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