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. New company 401(k) question
2. Freezing in plastic
3. Eating cheap on road trip
4. Leasing an electric vehicle
5. Too much money into retirement?
6. Midlife crisis?
7. Pay mortgage or start investing?
8. Nonstick pans
9. Hunting for food
10. Invites for expensive special events
Personally, I have no problem giving my children more freedom to explore the world. My feeling is that the more time I have to help my children slowly take the “training wheels” off of their life, the better.
The trick is to find ways to keep them safe while giving them as much freedom as possible to explore and grow without me hovering over them. How much freedom is the right amount It’s not always easy.
Q1: New company 401(k) question
I am 33 years old, married, 1 small child, income $93k (my wife makes about the same; child in daycare). I recently transitioned from a large corporation to a startup environment. My new company has an auto-enrollment option (3%) for their 401(k) plan but they do not offer a match. I have about $55k in my old 401(k), and for the past 5 years I contributed around 7% which exceeded the match (4%).
I am unsure of my next move. My old 401(k) is with Fidelity and the rep said to consider rolling it into an IRA. In that case I would likely opt out of my new company’s 401(k) plan and set up automatic contributions to the IRA. But the idea of not having a 401(k) plan makes me nervous for some reason.
Any advice or guidance? I should also mention that wife’s company offers a sizeable match (14%) that we are maxing out, and that she is fully vested.
The important thing is that you’re making contributions to your retirement savings. Whether it’s into a 401(k) or an IRA really doesn’t make a big difference compared to choosing to save. Don’t worry about not contributing to a 401(k) if you’re instead contributing the same amount to an IRA.
Having said that, I would feel better having my money in an IRA than a 401(k). The biggest reason to have a 401(k) is to get the “free” money from the company you work for right now, whether it’s matching money or simply free contributions.
So, if I were in your shoes, I’d roll that 401(k) over into an IRA. I’d shop around for a good one that has investment choices with a low cost. I’ve had a Roth IRA with Vanguard for years and I love it.
The best container to freeze food in would be a glass container, but they can be expensive compared to plastic options (and are also much more breakable in clumsy hands).
If you’re using plastic, it’s probably a good idea to thaw things out in the refrigerator over a long period of time rather than using a heat source.
For some foods, like soups or sauces, it makes sense to freeze them in ice cube trays, then save the cubes in another container. That way, you don’t have to worry about chemical leeching.
Q3: Eating cheap on road trip
How do you eat on the cheap on a long road trip? My family is planning a road trip where we stop at national parks this summer but it involves a lot of driving. Ideas besides the dollar menu?
Before you start driving each day, stop at a grocery store and buy items for the day – materials for sandwiches, easy-to-consume vegetables and fruits, and so on. Keep them in a cooler. (I also suggest plenty of refillable water bottles that you fill before you leave for the day.)
Whenever people are hungry, stop at a park and have a picnic. Break out the sandwiches, vegetables, fruits, and other items you bought at the grocery store and enjoy a meal with some time to stretch.
If you’re really crunched for time, you could have someone prepare sandwiches and other food items when you stop for gas.
My current car is worth a couple thousand more than I owe, so I can sell it and put the cash toward my student loans. We get a discount through my company that would make the electric vehicle $227 per month for 36 months (no down payment) for a total cost of $8,172. There are local and state incentives of $5,500, plus a $2,500 tax credit that I feel offset the cost of the lease to the point where I’m only paying $172 to drive it for three years.
On top of that, I would save about $100 per month on gas. We have a charging station at my workplace that I will primarily use so I don’t have to factor in higher electricity bills.
Does this make sense? Or should I just pay off my current car in the next year and then own it outright?
Usually, I’m opposed to leases, but this situation represents an unusual collection of factors.
If your company is reducing the price of that lease to the point that the tax incentives are driving the cost down to such a tiny point for you, you’re essentially getting to drive a new gas-free vehicle for pennies. You should jump on this opportunity.
This is such a sweet confluence of events that I would jump on board myself.
Q5: Too much money into retirement?
I am 29 years old, single, and will stay that way for a while at least. I got a nice job out of college at age 22 and I immediately started putting 12% of my salary into my 401(k) along with a 5% employer match. Today, I’m still dealing with student loan debt and driving a junker of a car. Should I stop contributing so much to retirement and get rid of this debt and a better car?
At this point in the game, you’ve essentially been contributing 17% of your salary to your retirement since age 22. You are substantially ahead of the curve.
Right now, you have a decision to make. Does it sound more appealing to you to get rid of the student loan quickly or the car quickly? Or does it sound more appealing to tough it out with those things and retire in your early to mid 50s, because that’s what kind of pace you’re on right now?
I don’t think you’re making a real mistake either way. It’s all about your goals.
Q6: Midlife crisis?
I am 48 years old and I just need some big changes in my life. I am unhappy with everything. My children are fully grown and have moved out. My wife is mostly obsessed with watching old movies all of the time and doesn’t want to do anything. I want to get out of this and I want to do it so I’m not broke. What do I do first?
The first thing you need to do is talk to your wife in a non-angry fashion. Tell her exactly how you feel.
This sounds very much like a situation where you’ve been bottling up feelings and keeping them to yourself for a long time and your wife likely has no idea how you feel. You can’t blame others for what they don’t know about the feelings you hold inside.
Work together to find new patterns for your life. It really sounds like you’re struggling to find a new way to do things after your children moved out and it’s not just you that’s struggling. Find each other and move forward together.
About 1.5 years ago, we paid off over $30,000 in consumer debt, leaving us with just a mortgage. The balance is $289,000 at 4.125%. Our home is worth $380,000.
Our monthly mortgage payments are $1400 but we pay an additional $500 or $1900. We could have it paid off in 15 years.
A brief summary of our finances:
Our AGI is about $140,000
I will receive a decent pension when I retire, in 20 years.
My wife takes part in a cash balance pension plan at work.
We fully fund Roth IRA’S.
We save $200 in each of our two kids 529’s every month.
We save an additional $500 each month towards our emergency fund.
We have $20,000 in an emergency fund (savings).
We have an additional $30,000 in a 457(b) plan.
We have a net worth of about $300,000.
We are set to receive a $20,000 insurance settlement. We have put ourselves in a position to do something wise with the money.
Do we put the money towards some form of investment, preferably real estate? Should we then redirect the $500 we pay extra towards the mortgage into that investment?
Do we save the $20,000 & continue to put $500 extra towards our mortgage?
It seems that 15 years is an awful long time to wait until our home is paid for in order to begin investing & diversifying our money.
When you say “real estate,” what exactly are you envisioning? Do you want to buy a home and rent it out to others? Are you hoping to buy a property, do some improvements, and flip it?
The first step you need to take is to figure out exactly what you’re planning to do and also whether or not you can genuinely make money that way. You need to use tools like Zillow to figure out if such a move would be profitable for you – you’re going to want to make sure it’s more profitable than just buying stocks or something like that.
Until you have a plan that you’re extremely confident in – and you should practically write a business plan for this – you should just sock away the money. If you want, you can take the $500 and channel it into that savings account each month instead of the mortgage.
In my experience, the coating on teflon pans starts to come off at around the five to seven year mark. You don’t notice it at first, then one day you actually witness food starting to stick to the pan or you notice a chunk of teflon in your food or you notice rust. In any of those cases, the pan needs to be discarded immediately because you do not want to ingest Teflon.
If you like nonstick, the best approach is to get a cast iron skillet, season it well, and learn how to use it. For example, with cast iron, you never, ever want to clean it with more than the tiniest amount of soap. You also don’t want to put any grease or oil in it until it’s pretty warm.
A well-seasoned cast iron skillet has a surface that you can cook eggs on without sticking.
It can work out if you approach hunting as a frugal hobby. If you have a gun handed down from a relative and wear clothing that you would use in other contexts, the cost of hunting is pretty low compared to the value of the food you would get from a deer.
However, many hobbyists can’t resist buying hunting gear of all kinds, from guns to clothing to equipment, and they also often indulge in displays of their kills. Those costs add up rapidly and very quickly cause the value of the food to be dwarfed by the expenses of hunting.
It’s a hobby that can be frugal or can be expensive. It does have the potential of providing food, which can reduce the costs somewhat depending on how expensive the hobby is for you.
Q10: Invites for expensive special events
For three months now, I’ve been keeping on top of our budget, not incurring any further debt, consolidating existing debts and cutting expenditure. Was going along swimmingly until I received a message from a friend who lives in a city that is an hour’s flight away from my home. She’s having a 40th birthday party and I’m invited. I would really like to see her as it’s been five years since I saw her last. She’s also inviting another close friend of mine who lives even further away from me, whom I haven’t seen in four years.
If I wasn’t in the financial situation I’m in, I would be there in a heartbeat. If I was the person I was 3 months ago, I would be there in a heartbeat, I’d just whack it on the credit card. Now, I’m trying to adopt the adage “If you can’t afford it, you can’t afford it.” so I’m in a quandary because I want to see my friends again, the opportunity to get everyone in the same room at one time is rare, but in order to do so, I would have to take on extra casual work, tighten my budget even further than it already is, or dip into my emergency fund ($1000).
As it is, we’ve already been saving to attend my mother-in-law’s 70th birthday party in the tropics at Christmas time – we should have the money for this by July. She gave us plenty of notice (3 years!) so that we can save up for the trip, and has made her expectations clear that attendance is not optional – not that we would ever consider not being there for this special occasion. Some things are just more important than money.
So my question to you is, how do you decide which opportunities qualify as not-to-be-missed opportunities? What decision process do you use to figure out whether you should spend the money?
Without a thorough picture of your financial state, I can’t tell you whether or not I think you can afford these trips. Honestly, even with a full picture, I couldn’t really tell you whether or not you can afford these trips because it has far more to do with the other financial choices you’re making and will make.
It sounds like you still have some credit card debt, but you’ve been making moves to keep it from increasing for the last three months. That’s clearly a positive step. Now, can you go on these trips without incurring further debt? Is that realistic?
If you really can’t make it work financially, wait a while and then visit those people when you can afford it. If you have a friend that lives less than 500 miles from where you live, plan a weekend trip to visit her when you’ve saved up the cash.
As for the tropical trip… so much of that depends on family dynamics. I can’t tell you whether it makes sense or not.
A final thought: you make the choice about whether these trips are doable every single day. Whenever you add an extra expense of any kind to today, you make the trip you want to take tomorrow a little more difficult until, eventually, that trip is just financially impossible. That big, painful decision isn’t made all at once. It’s made in drips and drops and little splurges. Keep the big trip in mind when you make the frugal choice today.
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.