Reader Mailbag: Hair Cutting

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. When to dump a car
2. Comparing home features for energy
3. 401(k)s, IRAs, and taxes
4. Cultural events, cheapness, and children
5. Blogging for money
6. An accountant for taxes
7. Trent’s spending traps
8. Building up credit again
9. Switching companies on their dime?
10. Calculating meal prep costs

I’ve recently switched back to cutting my own hair using clippers. It’s pretty straightforward to do it.

Why did I switch away? For a while, I wanted to wear my hair longer, but cutting it myself when longer always looked atrocious.

That time has passed, so the clippers have re-emerged. It’s incredibly inexpensive, pretty easy to cut, incredibly easy to wash and maintain, and looks just fine.

Q1: When to dump a car
I have 2004 Jeep Wrangler in super condition, with low miles comparably for the year (approaching 70k miles only). My wife and I commute into NYC by train everyday, so we don’t drive during the week unless its to run a local errand or two. On weekends we use the car, of course, to get around and go places (which is where the majority of the logged miles come from).

Question: I’m very close to paying off the loan (I have about $4k to go) so it’ll be paid for by the end of the summer. But, as is true of all Wranglers, the gas mileage isn’t great. Should I hold onto the car, pay off the loan and save for a year and then perhaps buy second, more fuel-efficient car? Do I try and sell the Jeep for as much as possible, and then put that towards the purchase of a new auto (but incur a new loan)?
- Karson

It really depends on how much you drive it and how much cash you have.

For example, if you’re driving it an average of about 8,000 miles per year, which is what you get when you divide 70,000 by 8.5 (the time since the car was new), you’re burning about 500 gallons of gas a year, costing you somewhere around $1,750 a year in fuel costs. If you switched it for a car that gets, say, 32 miles per gallon for that same mileage, you’d save about 250 gallons per year, saving you $875 per year in gas. On the other hand, if you bought it used with very low mileage and are using it more than that, you’re going to save more per year. If you use it less than that, you’re going to save less per year.

Now, if you switch to a new car right now, are you going to be forced to make payments on it? If you are, then you’re probably better off sticking with the Jeep because the $875 you save in fuel costs will largely be eaten away by interest on the car loan (depending on a number of factors, of course). If you can pay cash for the replacement (including your trade-in), then you’re looking at a different story and you should trade in sooner rather than later.

So, if you have cash on hand or you drive the vehicle a great deal, you should trade in sooner. If you have low annual mileage and little cash on hand, I’d wait.

Q2: Comparing home features for energy
I have a question about energy costs in homes. My husband and I are going to be looking for a new home soon and the area we’re looking in has a wide range of house options. These houses were built during different eras starting in the 60s through the 90s and have very different options. For instance, there’s a newer subdivision that was built in the 90s where almost all the houses have vaulted ceilings. Some of the houses were built in the 60s and have baseboard heat. Some houses have swamp coolers while others have air conditioners, whole house fans, or nothing at all. I’ve always heard that vaulted ceilings are huge energy wasters. However, I’ve also heard that newer buildings have been built for better energy efficiency. Do you know or have you run across resources discussing the pros and cons of various features that affect energy usage in the home? Is it more realistic to ask for average heating/cooling costs in the houses we’re interested in? My concern with this method is we may inadvertently compare people who set the heater to 68 degrees with people who set it to 78 which seems like it’d make a big difference in cost. I don’t have a feel for how much any of these differences cost so I don’t know if I’m talking about pennies, or dollars, or hundreds of dollars.

- Virginia

There are an almost infinite array of factors that influence the cost to heat or cool a home. How well is the house insulated? What is the external climate like? Is it hot? Cold? Humid? Dry? What are the architectural features of the home? What type of furnace or air conditioning unit do you have? What temperature tolerance do you have? Are there trees around the house to block sunlight?

Even if you controlled for all of those things, you’d still be hard-pressed to make an estimate as to the heating and cooling cost of the home.

If I were you, I’d simply shop for a home you’re happy with while keeping an eye out for a few obvious things (trees blocking sunlight, for one). Then, when you’re in the home, look into making some minor changes that will save you money on heating and cooling, such as better windows, air sealing, and additional insulation.

Q3: 401(k)s, IRAs, and taxes
If I max out my 401(k) but also have an IRA for a given year (say, 2012) and my income is greater than the limit for which the IRA is deductible (using these limits as a rough guide http://en.wikipedia.org/wiki/Traditional_IRA), will I also have to pay taxes on the IRA money in retirement? If not, how will I prove (30+ years in the future) that I already paid taxes on the money and withdrawals should be tax-free?

- Kelly

If the money you pay in now is nondeductible, then you don’t have to pay taxes on that money when you withdraw it from your IRA at retirement age. You don’t get double taxed, in other words.

The trick is that you have to be able to demonstrate that you’ve made nondeductible contributions over the years. To do that, you have to keep track of every nondeductible dime you’ve ever contributed. Just keep careful documentation of all of this along the way.

You’re still going to have to pay taxes on any contributions you deducted earlier on as well as your gains, but keeping good records now will save you tax dollars later.

Q4: Cultural events, cheapness, and children
How do you find inexpensive cultural events that are appropriate for the whole family? I find that everything is either completely inappropriate for my children or is going to cost an arm and a leg. I’d rather just stay home!

- Debbie

For starters, look to towns near you that have a large university in them. These towns tend to have quite a few cultural events that are quite family friendly for free. We’re lucky in that we live vaguely near Ames, Iowa (home of Iowa State University) and Des Moines, Iowa (home of Drake University) and both cities often have wonderful free cultural events.

Another great tactic is simply to be patient. Keep a careful eye out for discounts and “free” days for families. Many museums and theaters do these kinds of things, but you have to be aware of them. Sign up for mailing lists.

I also keep an eye on many of the community calendars of towns near us. There are events of all kinds going on all around us, so we’re just selective for family-friendly events that aren’t costly.

Q5: Blogging for money
I stumbled upon your site and I can’t stop reading your articles. I’m especially interested in how you got to where you are with your website. In your story you mention that you were able to quit your job because The Simple Dollar was beginning to generate enough income. I have been wanting to do just that but have no idea how to generate income from my website/blog.

I’ve read your articles about this topic from 2009 and was wondering if you have anything new to add. Googling this topic gives me a lot of ‘get rich quick’ schemes so I’d like to hear from a real person.
- Lindsey

There are a lot of ways to generate income from a blog. You can sell advertisements using services like Adsense. You can include affiliate links in your posts so that if people follow up on things like a book review, you get a small fraction of the book sales (look at Amazon Associates). You can also sell paid posts to advertisers who would love to buy some of the content space on your blog.

The problem is that these routes don’t earn much money unless you have a lot of traffic. A new blog with really good earnings can bring in, say, $5 per 1,000 page views. Now, for a new blog, it takes many days to earn 1,000 page views – a week or two. That’s not much compensation. However, if you’re bringing in 1,000,000 page views a month, that’s $5,000 a month.

In other words, it’s all about the traffic. If you can get a lot of people reading your blog, there will be many ways to earn money off of them. However, without a lot of readers, you just can’t earn a lot of money.

Q6: An accountant for taxes
I’m getting started on my taxes and was wondering if I should hire an accountant. In addition to my day job, I’m involved in a small project with some partners, which has untaxed revenue in my state, but has business expenses I might be able to write off. What are some reasons why people hire accountants to do their taxes instead of doing it themselves? In the past, I’ve always just used off-the-shelf software to file my taxes, but I’m not sure if it would be worth the cost of paying an accountant in my current situation. What do you suggest?

- Kevin

People often hire accountants when they don’t want to deal with the off-the-shelf software or find themselves with complicated situations that they’re unsure how to navigate on their own.

My parents, for example, have an accountant to handle the taxes from my father’s collection of side businesses and side incomes. They’re just concerned about doing it themselves, though I’m pretty sure TurboTax could handle it for them.

If you feel confident in your ability to input everything in an off-the-shelf tax package, then I’d just use that. If you don’t feel confident, an accountant will set you straight. I don’t think either one will steer you wrong.

Q7: Trent’s spending traps
Are there any things that you are constantly tempted to spend money on? How do you avoid spending money on those things?

- Mike

My biggest temptations are Kickstarter (I love helping budding entrepreneurs), board games, and books.

I handle the board games and books by doing lots of trading, and I also mostly buy used items. This keeps the cost very low.

I manage all three of them by issuing myself a pretty tight spending allowance each month. I keep my spending under that total, regardless.

Q8: Building up credit again
My wife and I are at a point where we want to build good credit. We have followed your counsel, eliminated debt, and cleaned up our credit as best we can. When we started, our scores were 427. We are now at 572. We want to buy a house suitable for our needs in 1 year. we have 4k available to get secure cards and/or secured loans. (we have 3 mo emergency fund of 9k). What can we do to have improved scores in that time frame? Also, if i get cards, do i get one for my wife and one for me, or one for both (will they report for both of us on one?).

- Ron

You’re definitely on the right track. However, with your current score, you’re still not going to be eligible for a prime mortgage. Patience is really the key here.

One step I would certainly take is to start scouting credit unions and financial institutions in your area for mortgage potential, then focus on building credit using that institution as your source for the credit. This builds you up as a customer there. One thing I would strongly urge you to look for is a bank that does manual underwriting on mortgages, meaning that they don’t just rely on credit scores to decide if they’re going to lend to you or not. Just ask them if they do manual underwriting when investigating them.

If I were you, I would get separate cards for each of you, then add the other as an authorized user on each card. Some banks report authorized users to credit agencies, while others do not. You can ask about specific policies from your bank to be sure.

Q9: Switching companies on their dime?
The company that I work for is looking for people to volunteer to leave the company. They are offering 2 weeks paid for every year of service + 6 months cobra paid+ they have hired an outside staffing company to help you find a job etc. I am 32 years old with a 7 year old child. My husband lives overseas and wants me to move there with him with my son. I have 30K in an emergency fund and no debt, plus I have been with this company for close to 13 years so I would get bet 5 and 6 months severance.My question is what would you do ?Should I take the package,since there is no guarantee that I will still have a Job after MAR 2013,or should I just stick around until next year and postpone my move overseas,to be noted that they might not be another package if I wait. Also my husband lives in Italy,so there is a pretty good chance that I would not be able to find a Job over there right away.The other issue is that right now my hours are horrible and I pay close to 1000.00 dollars every month for child care for my son after school. I am so confused is not funny.. Please help!!! I have been reading your posts for a number of years and I know you will not stir me wrong.

- Megan

I would take the package and move to Italy.

First of all, you do not have long-term job security there. If you leave now, you get six months of income, plus a year of not spending $1,000 a month for child care, plus you’ll have twelve months of opportunity to find work, plus a full year together as a complete family. If you wait a year to leave, you’ll have a year’s worth of income, but you’ll have lost $12,000 in child care costs plus a year’s worth of job searching plus a year as a complete family.

Looking at the two options, the choice would be absolutely clear. Go for the family, the reduced child care costs, and the time to find a new job. Even if you don’t find work, the other rewards will make up for it.

Q10: Calculating meal prep costs
My employer offers lunches at the canteen for a moderate price. That includes the price of the ingredients, the preparation and the washing of the dishes.

I want to calculate what it costs me to prepare a meal myself. As I compare prices at different warehouses, I can calculate the price of the ingredients.
- Jeff

Beyond the ingredients, the real issue with meal preparation is time and effort. Everyone values those things differently.

You have to ask yourself what exactly your time is worth outside of work. Are you willing to do a task at home to save $10 per hour (in after-tax money)? $20 per hour? What is your time worth to you?

Once you know that, then you can easily figure out the value of the compared meals. If you decide your time is worth $10 per hour in savings and you can prep the meal in thirty minutes, add $5 to the cost of the meal you prepare and compare it to the canteen.

If you’re merely taking leftovers, then you’re really only looking at a bit of extra meal prep time (for the time spent making extra food), the time to package it (a minute or so) and the time to wash dishes (a minute or two). This is why many frugal people tend to take leftovers to work for lunch.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...
  1. Johanna says:

    Q3: Since anyone, regardless of income, can now convert a traditional IRA to a Roth IRA, there is no reason (as far as I know) to be hanging on to a nondeductible traditional IRA. A Roth IRA is always superior to a nondeductible traditional IRA: You contribute after-tax money in both cases, but with the nondeductible IRA you pay taxes on the gains, whereas with the Roth you don’t. You can contribute to a nondeductible IRA and then immediately convert it to a Roth.

  2. Johanna says:

    Q9: “My husband lives overseas and wants me to move there with him with my son.”

    But what do *you* want? Do you want to live in Italy? Do you want for you and your son to be with your husband? (Not a silly question – there are legitimate reasons why you might not.)

    I agree with Trent that taking the severance package now probably makes sense. But what you do with your life after that is up to you.

  3. Kevin says:

    Q1:

    “Should I hold onto the car, pay off the loan and save for a year and then perhaps buy second, more fuel-efficient car? Do I try and sell the Jeep for as much as possible, and then put that towards the purchase of a new auto (but incur a new loan)?”

    Why are those the only two options? Why not pay it off, then sell it and buy a USED auto with NO new loan? Or better yet, why not sell it right now and buy a more fuel-efficient, USED vehicle? Why do you seem to believe that whatever you buy MUST be “new?” Get away from the “car payment” trap!

  4. lurker carl says:

    Q1 – Based on the information you provided, you’ll lose more money in depreciation on a replacement vehicle than you’ll save in fuel. Don’t waste a dollar to save a dime.

  5. Petra says:

    About Q9: I would jump at the opportunity, too. Get a good language course after you arrive in Italy, this will help you find a job. And I am sure that they are always looking for native English speakers.

  6. Misha says:

    #4 is funny to me; it seems like every event I see advertised is billed as “family friendly” or “fun for the whole family/all ages”, which in my experience has been code for “fun for all ages 10 and under”, or “fun for the whole family provided that your family meets a specific definition of ‘family’” – these types of events never seem to have experiences targeted to both children AND adults, just child-targeted activities and never adult-oriented activities (it’s really possible to have such things without them being inappropriate for children!).

  7. Misha says:

    that should read, “every event I see advertised THAT is billed as…”

  8. Icarus says:

    Q5 Trent doesn’t mention how long it took him to build up his readership and traffic. Is it still possible to to start a lucrative blog or has that ship sailed?

    Q9: I’d jump at the opportunity as well. You’ve got the rest of your life to work and she’s young enough that getting another job shouldn’t be impossible.

  9. Tom says:

    Q10 – Jeff: You can make a pretty balanced lunch of PB&J, a piece of fruit, and some other snack like pretzels for under $2, and that doesn’t require a refrigerator to store, microwave to heat, or utensils to consume.
    I don’t know why Trent goes into his time valuation calculation for a question this straight-forward. The time value of preparation is a theoretical cost. Even if you’re an hourly employee, I’d be willing to guess you’re company makes you clock out and take a half-hour lunch, usually due to labor laws. Unless you’re getting a REALLY good deal at the canteen, it is almost certainly cheaper to pack a lunch.

  10. Johanna says:

    Q4: Debbie, where do you live that you have all these inexpensive cultural events that are inappropriate for children? I’d kind of like to move there.

  11. Jules says:

    Q9 – How’s your Italian? In all seriousness, unless you already speak the language, the emigration process (if you want to do it properly, and not do what I did, which was pack a suitcase and buy a one-way ticket) can be a harrowing one. From a strictly financial point of view, I am 100% behind Trent’s suggestion. But having done the expat thing, I will say that it’s not easy, and that goes double if you’re hoping to find a job in Italy.

  12. Amy K says:

    Q3: Like Johanna, I suggest a Roth IRA. I’m not sure about the conversion because there are tax consequences, but I would look into opening a Roth IRA. True, you won’t get the tax deduction this year (you weren’t getting it anyway!) but you will be able to withdraw tax free in retirement, and no need to keep track of the documentation.

  13. AnnJo says:

    Q1, I agree with lurker carl. Keep the car as long as it suits you for comfort, safety, or other considerations If you’re putting on 8K+ miles a year driving it weekends only, you’re doing a lot of highway driving and your mileage is probably better than the 16 MPG Trent used in his calculations. Sale prices on low MPG cars are probably lower than you deserve for a low-miles car in excellent condition, so you’ll take a hit selling it, and you’ll take a hit buying a high MPG replacement, especially if you buy it new. (And if you buy it used, you are trading a car in excellent condition for a car in uncertain condition.)

    If you want to lower your fuel costs, consider being more mindful of your weekend travels: coordinate errands and pleasure trips to minimize miles driven, and take fuel usage into account in choosing recreation destinations. 8K miles of weekend-only use is quite a bit; maybe there’s some excess mileage that can be trimmed.

  14. K says:

    I want to move too!

    I love things that are inappropirate for children!

  15. Riki says:

    We should all move to the place that is utterly devoid of child-friendly activities!

    It sounds like heaven on earth.

  16. Mister E says:

    What sort of cultural events is Q4 look for, I wonder?

    Around here we have many street festivals, fireworks and such that are free to attend, and fairs that can be inexpensive if you want them to be. Most of these are certainly family friendly although not necessarily aimed at children specifically. If you’re looking for activities that are aimed exclusively at children (ie people without children are excluded and even a bright 10 year old would find it a bit silly), then your options may be more limited.

  17. Michael says:

    Icarus, it’s still quite possible to start a new site, but the lazy content farm ship has sailed for the most part thanks to changes in taste, search engine ranking formulas, falling ad payouts, etc. Even in 2006-2008 when Trent grew TSD to full-time income this wasn’t the best way to make money online, but it worked with his strengths so it was best for him. If you can write a LOT and not abandon the site you can still pull it off today, but you won’t make as much and you’ll have to write better than someone would have had to five years ago.

  18. Julie says:

    Q2: There’s a misconception about vaulted ceilings. Yes, those rooms are less efficient to heat, but they’re much easier to cool. When I lived in Arizona, I noticed nearly every home — even crappy little apartments — had vaulted ceilings. So don’t immediately write them off!

  19. Allison says:

    OK now I’m really confused about the whole taxable and nontaxable retirement account thing. I’ve been trying to wrap my brain around the discussions here regarding contributing to both in order to take advantage of the way taxes work. However, the comment above says there’s no benefit of holding on to a traditional IRA. I thought there was a benefit because your contributions are deductible? I’m sure I’m missing something…

    In my case, I have a rollover (traditional) IRA, a Roth IRA, and an account I contribute to through work (I think it’s a 403b–I work for a nonprofit). I’m trying to figure out whether it’s worth converting the rollover account to another roth or whether it makes sense to contribute to it.

  20. Allison says:

    wait now I see that you can’t take the deduction if your income is above a certain level. I think that applies to us. nevermind I guess.

  21. jim says:

    Q2 : The keys are to look for good insulation, double pain windows and efficient heating and cooling. Older homes are usually worse than newer homes but there are exceptions. You also have to know the costs in YOUR area. We don’t know where you live so we don’t know if your electric is 6 cents a kwh or 16 cents. Usually natural gas is most efficient and electric is worst but theres exceptions. High efficiency 95% gas furnace could be 50% cheaper than a very old furnace. Baseboard electric heaters are often the most expensive heat option. How much it all matters depends on where you live as well. If you’re in North Dakota, Arizona or San Diego will impact the costs drastically.

    Q5 : Don’t expect to make a living as a blogger. The vast majority of bloggers would make more money on an hourly basis flipping burgers instead (serious). You can make money if you put in time and stick to it, and there are rare folks who can make a good living. But its a lot of work and time and most people only make a small side income. I don’t want to discourage you but just want to set the expectations. If you NEED money then I’d recommend putting your effort elsewhere. If you think blogging is fun then stick to it and enjoy it as a hobby more than a source of money.

    If you’re into personal finance blogging then I’d recommend checking out Yakezie blogger group. (easy to find via google search) They are better resource for a new blogger since they’re a ‘club’ of sorts specifically for new bloggers.

    Q10 : The cost of washing dishes per meal is almost negligible. We’re talking a 2-3 pennies per meal.

  22. SwingCheese says:

    Q4: I take my kiddo to local high school events, too. There is usually a nominal cost (which goes right back to the school’s programs), they’re children appropriate, and my son gets a kick out of seeing the “big kids”. We’ve been to cultural events and athletic events both. He’s already asking about when we can go to football games and see our friend’s daughter perform as part of the marching band, like we did last year.

  23. Temi says:

    Q3: I agree with Johanna that a Roth is much better if you can’t take the tax deduction. I would add that Trent’s advice about keeping careful records of non-deductible contributions is incomplete. There is a required form you must file with your tax return if you make a non-deductible contribution to a traditional IRA, Form 8606. There is a penalty for not filing this form. You can’t just track your contributions and keep it in a drawer somewhere.

  24. Laura C says:

    Q6-When to hire an accountant: As a CPA I have to respond to this one. If you have an interest in minimizing your tax bill now and in the future to the fullest extent, then it’s time to talk to a tax accountant for some tax planning. (You didn’t know we did that?? Yes, we do!) I’m not saying an accountant can guarantee you’ll never pay taxes, but using an accountant gives you the advantage of having more information–our job as tax preparers is to help you report for the prior year and look for every eligible tax benefit for you, but more importantly, we take that information and other personal and business information, and help you to determine the best course of action in the future to minimize your taxes owed over time. If you have partners in a business, you have even more complications because you have to consider your interest in the business and future planning for that. For example, what would happen to your share of the business if something were to happen to you? What would happen to your interest in the business if one of the other partners dies and their heir was a nasty ex-spouse’s minor child?

    If you are not interested in planning for the future, and all you want is your tax return prepared, you could probably do it yourself. But think about this: why do you think the big-box tax preparer companies have those commercials that “find” extra refunds for the individuals who prepared their own returns?

  25. Laura C says:

    Q9-There would be a few questions to ask yourself on this one. The primary one is this: how comfortable would you be leaving your support system? If you can’t stand the thought of leaving your family and friends (even if you know they can come to visit), or are not great at socializing, you might find yourself miserable, frightened, and angry with your decision. If you are the adventurous, outgoing type, you will likely be very comfortable–as long as you learn a bit of the language to get by in your daily life.

    You didn’t say why your husband is in Italy, or what part of the country he is in. Is he with the military or government service, or a government contractor? How long do you all expect to be there? If he is attached to the military or US government there might be job opportunities on the military installation or consulate nearby for you. If he is with a US company, job opportunities may not be there for you–how important is it for you to work? Would you consider being a stay-at-home parent? In Italy, the unemployment rate is high right now, and jobs are difficult to find and may require residency for some period. It is somewhat worse in the south than in the north. And the culture in Italy is such that they cherish and revere the family and you are bound to have many other families with whom to interact quite frequently.

    I have done this–though not to Italy, but I lived in Europe for 7 years. When I left my job, the owner had said she was thinking about offering me a partnership in her business–and had I not had the opportunity to live overseas, I whould have jumped at the chance to her partner in a business I loved. I am an independent, adventurous person, and looking back, I would do it again. The cultural opportunities and experiences were priceless.

    My advice: if you would be comfortable leaving the US behind, take the money and run.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>