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. Financial account security
2. 401(k) and company stock
3. Closing credit cards
4. Credit card rewards
5. Videos on personal finance
6. Credit card debt after death
7. Company loyalty
8. Expressing non-financial gratitude
9. Lifestyle inflation as reward
10. How much is commute worth?
In my area, quite a few parents seem to enjoy having rather expensive birthday parties for their children. I’ve seen parties where a circus seems to have been set up for the purpose of a birthday celebration.
Other parties are much more casual. I prefer the ones that take place at a park where the children run around in the fresh air and play together. My son attended one a couple of years ago where all of the participants dressed up as superheroes using pieces of cloth and construction paper chest badges.
Give me the latter style of party any day of the week. The children seem to have just as much fun, the parents seem a lot less stressed out, and the bill is a lot smaller.
Q1: Financial account security
How can one protect bank accounts from hackers and identity theft? I feel vulnerable with my savings (and checking). Would you suggest having several accounts? There is miniscule interest, of course. I do not do bill-paying online, but I have accounts online. I also wonder about my ETrade account security. Short of putting our nest eggs under mattresses, what do you suggest?
Frankly, no one can protect you from industrial identity theft – things that take place at the bank, in other words. Your best blanket protection against that is to carefully read your bank statements, but you should always do that anyway.
Spreading out your savings and checking accounts increases your risk of a compromised account, but reduces the impact of a single intrusion. Seven accounts with $100 each means seven times greater likelihood of an attack than one account with $700, but the effect of each attack is only one-seventh as bad. It really depends on what you view as a bigger concern.
Your best approach with online banking is to use a very complex password and non-intuitive answers to security questions. For example, you should never have a security question be “What was the color of your first car?” and have your answer be “blue.” An identity thief will try that very quickly. The more complex your passwords and security question answers, the harder it is for an outside person to access your account.
Q2: 401(k) and company stock
At my company, the company’s contributions to our 401(k) is in the form of company stock. These shares are fully vested once you’ve worked there for five years, meaning before that you can’t sell them within your account. I’m at the five year mark and I’m wondering if I should sell them.
If selling them means that you’re simply changing them within your account into a different investment and does not mean actually taking money out of your 401(k), then it’s probably a wise move to sell most of it.
I would be hesitant to have more than 5% or so of my retirement in the stock of a single company, regardless of how much I trusted that company. It’s just not good in terms of diversifying your investments.
Should you be at less than 5%? I probably would. Again, it really depends on your sense of stability in terms of the company’s long-term future.
Q3: Closing credit cards
I have a question about one of my credit cards. I have had this credit card for about 8 years. It has had a zero balance for about 4 years (I, never touched it after I got married and joined my husband’s account). I don’t like the idea of having an open line of credit out there (thinking of hackers and the like) but will closing the account affect my credit score?
Do you have any other credit cards that have been around for more than a few years? Do you already maintain a low balance on the other cards you have?
If the answer to both of those is yes, cancelling the card will have only a negligible impact on your credit score. If your answer to those questions is no, then cancelling it will have a bigger impact.
Essentially, you need to evaluate what your credit situation looks like without that card. Do you still have a long history? Do you still have a low percentage of your total credit limit used up?
Q4: Credit card rewards
I’ve had [a rewards credit card] since 2008 and I have yet to cash in any rewards on it. I have been saving up the rewards points for a travel package. My boyfriend says this is a mistake and I should just cash it all out now for other stuff like gift cards. What do you think?
If your card gets cancelled, it’s likely that those rewards will just vanish. You may or may not get a window of opportunity to use what you have left depending on the agreement with the card issuer.
In other words, you might sit on the rewards, get close to your total, then have the card cancelled and lose all of it.
If you can get other items that you can easily liquidate for those points – like Amazon.com gift cards – then I’d get those right now. Use them for the equivalent amount of nonperishable household supplies, then put that same amount into savings and save it for the trip you’re dreaming of.
The best starter is probably Dave Ramsey’s ten part video series on his money makeover. It’s a great little start.
My favorite one-shot personal finance video is Warren Buffett’s single best personal finance tip.
This is another good video series on the personal finance basics. It has a bit more of a “classroom” feel.
The Khan Academy has some great videos on finance in general, though they don’t apply directly to personal finance. I just like to give a shout out to Khan Academy as often as possible because I consider it perhaps the best source for video learning on the internet.
Q6: Credit card debt after death
I’ve been working two jobs for over a year, putting every spare dollar towards my credit card debt. I intend to keep doing this until my debt is gone, but I have a question. As a single person with no dependents, if I should die before my debt is paid off, what happens? I have a 10-year old car that’s paid off, a house that will be paid off in 2016, and a few hundred in my savings. Would these assets be taken by the bank? And then what?
It depends on your will, basically.
Your estate’s total assets and debts will be brought together and either a court or your estate’s executor will resolve all of it, making sure all debts are paid. The remaining value of your estate passes to your next of kin or whoever you specify in your will.
If you don’t have enough assets to cover your debts, then the creditors will just take as much as the court gives them (assuming the debts are only in your name).
Q7: Company loyalty
I’ve worked at my job for six years now. I have great relationships with all of my coworkers and I love the work. Another company contacted me and has offered me almost three times as much salary to join their company. I went in and talked to my boss about this and he gave me a raise but said that they simply can’t afford to match the offer, but he stressed how loyal the company is to its workers. They really are. I can’t remember anyone ever being let go unless they were either doing nothing at all or were causing real workplace issues. I am torn between loyalty and cash.
It really depends on a lot of things you don’t address here.
What is the new company like? Do they have a track record of treating their employees well or are they a meat grinder? Do people like working there or are they stressed out all the time? Has the company been stable for a long while or have they had to purge employees in the fairly recent past? Doubling your take-home doesn’t mean much if your life becomes miserable for it.
Also, do you need the extra cash? Are you actually having difficulty making ends meet right now, or are you just hoping for some lifestyle inflation?
A bird in the hand is worth two in the bush. Unless there’s another compelling reason to move, I would stay put.
Q8: Expressing non-financial gratitude
Through careful planning, some smart career moves, and a bit of luck, my parents (both in their early 60s) have become more than comfortable financially over the past decade. Over that time, they’ve been more free to travel and sometimes invite my sister, me, and our spouses along–and they often take on a significant portion of the cost for the trip, paying for our hotel rooms and/or airfare. As a young, cash-strapped grad student, I happily (and gratefully) took them up on the chance to visit places I would never be able to afford otherwise and spend time with my family at the same time.
As I’ve gotten older, I’ve started my career, gotten married, and bought a house, and my spouse and I are expecting our first child. After some initial struggles, we’re in fairly good shape financially and working to rid ourselves of debt, and with a baby on the way, we’ve been paring our spending down even more. My parents have invited us on a last pre-baby trip to a beach town with them; they’d pay to rent a condo for the four of us, and my spouse and I will use miles from our airline travel credit card to fly there, minimizing our costs (and with a full kitchen, we can eat a lot of meals in to save some money!). It’s a trip my parents had already planned to take themselves, and they’d love for us to join them. I feel bad, though, because while we *could* afford to take such a trip on our own (it would be tight but do-able), we’re trying to be good and not spend the money. My parents understand this, I think; I offered to send chip in our half of the condo costs, but they decided to pay for it as a gift in lieu of, say, birthday and holiday gifts that they might otherwise give–and, I think, as a way of supporting our financial choices.
My question is this: When a friend or family member enjoys “treating” you in this way (over and over again) and you can’t return the gesture on the same scale, what are some good ways to express your appreciation & gratitude? My spouse and I have generally done things like treating them to a nice meal or two while we’re away or doing as much of the grocery shopping & cooking as possible for meals eaten in (my spouse is a great cook). I’m also planning to take lots of photos on the trip and present my parents with a photo book afterwards; I did something similar for a family trip years ago, and they loved it. I just feel like it isn’t enough sometimes! What else would you suggest?
You’re already doing the right things to show your gratitude. You’ve got to remember that the people doing this are doing it because they want to do this and they enjoy your companionship on trips like this.
A heartfelt handwritten note also helps. It can be hard to express what it means in words, but find a way to write the words down yourself in your own handwriting. It really means a lot. Just stick it in their luggage at the end of the trip.
I don’t think you really need to do more than you’re doing, though. You’re already doing the right stuff.
Q9: Lifestyle inflation as reward
I am sick of you and other personal finance bloggers talking about how lifestyle inflation is such a bad thing. Lifestyle inflation is my reward for working my tail off for fifteen years.
If the reward you truly want for fifteen years of hard work is lifestyle inflation, have at it.
I experienced huge lifestyle inflation from about 2003 to 2006. I spent like a madman buying all kinds of things. I had a shiny vehicle to drive, nice clothes, lots of gadgets, every DVD or video game I wanted, and on and on and on. After buying all of that stuff, do you want to know what feeling I was left with in 2006? Emptiness. Fear. Entrapment.
Having nice stuff is wonderful, but it comes with a price. Every time you buy something, you’re taking money away from something else in your life. Lifestyle inflation means you’re spending your dollars on material things that you lived without just fine before the inflation started, and those dollars are going away from securing a long and stable future for yourself that’s free from the shocks of job loss and opens the door to walking away from work entirely.
To me, there are no material things in the world that I would take in exchange for the low stress of debt freedom and having money in the bank. I’d rather eat beans and not worry about tomorrow than eat steak and have stress. You might find a different trade is right for you and that’s cool. It’s just not the trade I want to make and, well, I’m going to spend my time talking about the trade that has brought the most value into my life.
Q10: How much is commute worth?
My lease ends in a month and I’m looking at two apartments. One of them is about ten minutes away from my job and the other is about thirty minutes away. The cost difference between them is about $200 a month after you factor all of the transportation costs out. Is the closer one worth $200 a month?
Assuming that the trip length is one way, you’re talking about a difference of forty minutes in commute five times a week, and with four weeks in a month (let’s use that as a baseline), you’re talking about fourteen hours of commute time or so per month.
Now, compare what you’d do with that time on your commute versus what you’d do with that time if you weren’t commuting. Is whatever you would be doing worth $14 per hour?
For example, if you’re taking mass transit and you’d spend that time reading a book… but if you were just going home and reading for a little while anyway to unwind, it makes no difference.
If you’re not getting additional value out of the time you save not commuting, then there’s no reason to pay money to reduce that commute.
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.