Reader Mailbag: Piano Lessons

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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. Logic of retirement savings
2. Do customer surveys matter?
3. Trailer park “stigma”
4. Greedy children
5. Better return on emergency fund
6. How to stop obsessing
7. Starting a blog
8. Old check carbon copies
9. Interesting candy story
10. Child interested in politics

My daughter has been taking piano lessons for a while. The practice aspect of it has been very interesting.

Her teacher suggested that she practice for about ten to fifteen minutes a day, since she’s so young.

Our trick is getting her started. About a quarter of the time, she’ll think of it on her own and go downstairs to practice. Another quarter of the time, we’ll mention it to her when she’s not doing anything, and she’ll happily go downstairs and practice.

The other half of the time? She’s involved with something else and doesn’t want to stop to practice, so it ends up being a bit of a struggle.

The interesting part of all of this is when she actually goes downstairs to practice, we don’t even have to bother to time her. She’ll get really into it and play for half an hour or longer, sticking pretty strongly to her lesson for the first half, then experimenting for the latter part of her practice session.

Focus isn’t a problem with her. Directing that focus is the challenge.

Q1: Logic of retirement savings
I recently started a new job with a 401(k) that leaves a lot to be desired — investment options with high fees, etc. While I’m planning to contribute to the max match, I’m thinking I should look elsewhere after that, versus aiming to hit the $17,500 annual match for the tax deduction value.

A Traditional IRA is an obvious alternative option, as my income precludes me from contributing to a Roth IRA. However, when I compare a non-deductible IRA option to a simple brokerage fund account, it seems like the the IRA has a disadvantage. Assuming all things equal, wouldn’t it be smarter to invest in the mutual funds, ETFs, etc. that I want through a normal brokerage account and only have to worry about paying capital gains taxes in retirement, which are currently at lower levels than ordinary income taxes for most tax brackets, including my own? If I invest in a Traditional IRA, I’m going to end up paying ordinary income tax on the money now — when I get it/when it goes into the IRA as my income prevents me from being able to deduct it — and then again on the IRA distributions in retirement. Wouldn’t an IRA also mean that I’d be on the hook for social security and medicare taxes on those distributions, too, since it’s treated as normal income and not capital gains?

The obvious assumption here is that income tax rates for me will always be higher than the capital gains tax rate. Obviously a lot will almost certainly have to change in terms of tax rates between now and when I turn 65 in 2050, but I’d be curious to get your take on the situation.
- Jerry

The catch is that dividends are taxed at the normal income tax rate when you earn them. If you have your money in a brokerage account, that’s going to be additional income right now that you’ll have to pay at whatever income tax rate you’re currently at.

If you have stocks in a retirement account, you don’t owe taxes right now on the dividends. They just roll into that account and you pay when you withdraw them. Theoretically, you’re in a lower tax bracket in retirement, so you’re then paying a lower tax rate on those dividends.

All of these types of calculations are based on predicting where income tax rates will be in the future, which is guesswork. My gut feeling is that rates will rise in the future, but will they rise enough to make up for a lower income level in retirement? I honestly don’t know.

Q2: Do customer surveys matter?
Like you guys, we’re focused on buying things that maximize “bang for the buck.” What we struggle with are things like customer service and reliability, which seem to rely on surveys of customers. How is that any good? It seems to me like the only people who would send in surveys are people with axes to grind, so the data is skewed.

- Roger

I am very sure that large surveys can statistically account for that.

Right off the top of my head, I can think of several models that would be worth trying. You could assign a default score to all unreturned surveys. You could use comparison and percentages of unreturned surveys to figure out what exactly a higher percentage of unreturned ones mean.

I actually think that their methods for counting the surveys are one of the least questionable parts of the process. I’m usually more concerned with the wording of the questions they ask, to tell the truth.

Q3: Trailer park “stigma”
I live in a good area with great schools. My husband and I bought a double wide 3 years ago in a trailer park. While it is great to only pay just over $400/month on lot rent, I am struggling with the stigma of living in a trailer park. I have checked out homes to rent in the area and the cheapest that would house five people is around $850/month. It is nice to live beneath our means, but hard to be proud of living in a trailer. I know that I shouldn’t care what others think, but it can be difficult. My oldest is entering high school and is embarrassed about where we live. Any advice?

- Angela

High school children are embarrassed about their family no matter where they’re living. If your oldest wasn’t embarrassed about your house, (s)he’d be embarrassed about something else instead. Don’t let that drain you.

If you feel a desire to live elsewhere, feel free to do so, but I wouldn’t let social stigma drive that decision.

Instead, base that decision on dollars and cents. If there is a good reason to move elsewhere – you save on commuting, you save on other costs – then do it. Don’t let what others think steer your financial moves.

Q4: Greedy children
Do you have a solution for dealing with greedy children? My oldest son actually complains about gifts if they’re not good enough and basically won’t get rid of toys he doesn’t play with because he prices them really high at yard sales. Ideas?

- Andrea

There are a lot of things you can do in this situation. It really depends on your parenting style.

One thing to do is to simply say that for every new item that comes into the house for him, one has to leave. When it leaves, it goes into the yard sale box (or the Goodwill box) and you price it, not him.

If you have relatives that overindulge your children, talk to them. Tell them that you’re witnessing a lot of greedy behavior and that you need them to back off a little until he matures.

Get them involved in a service project where they witness people who don’t have much in their lives. Spend some of the holiday season doing volunteer work so they see how much they have.

If none of that works, I suggest taking away privileges. One good technique is to take away the power cord for their video game systems for a while.

Q5: Better return on emergency fund
My husband and I have have built up an emergency fund ($10,000) in a savings account at our local credit union. We would like to get a better return on our money, but are not sure where to invest it. Is a mutual fund a good option? Do you have any recommendations, or at least know of a resource to start looking?

- Shelley

The purpose of an emergency fund is to have liquid money available whenever you need it. Putting that emergency fund into a risky investment undermines that need.

What you should do is figure out how much you actually need in an emergency fund. It really depends on your situation, but if you’re a married couple without kids, somewhere between two and four months of living expenses is a good number.

Keep that much in savings. Invest the rest, but before you do, figure out a goal for that money. What do you want to do with it eventually? That will help you to figure out how you should invest it (the shorter the timeframe, the safer you should invest).

Q6: How to stop obsessing
My wife and I have managed to pay off almost all of our debts (we still have our mortgage). Four years ago, we had a bunch of credit cards, two student loans, and a car loan!

So why am I writing? My problem is that I almost feel obsessed with all of this. Every day, I sit down and track our spending and how we’re doing and so on. I can tell you exactly when each bank we do business with applies interest to the savings accounts – and it’s less than $2. It’s eating a lot of time and I think it’s stressing me out more than it should given our situation.

How do I stop obsessing?
- Joe

You need to deliberately break that routine of reviewing your finances every single day.

No matter how tempting it is, don’t do it. Just make yourself not do it every single day. Whenever you think about doing it, find something else to do.

A monthly review is fine. A weekly review is even okay, though I consider that a bit much. A daily review is pretty much a ticket for obsession.

You’ll find that as you back away from reviews it becomes less and less of a constant focus in your life, which is a healthy thing. Just keep an eye on your habits and routines to make sure you don’t slip back into a sequence of bad choices.

Q7: Starting a blog
I’m a 20 year mortgage consultant and want to start a blog but somewhat clueless about blogs. Do you have any suggestions on a good blogger site to start out with? As of now I know about word press and weebly.

- Darren

I would start with WordPress using WordPress.com. That way, you can get used to how WordPress works without having to worry about hosting it yourself.

Don’t worry about the inability to have ads there. At first, you’ll have such small traffic that it won’t matter. You can easily export your data from WordPress.com if the time comes where your traffic has grown and you want more ad options elsewhere.

Your focus at first should be on writing. Find your voice, find a schedule, and find a topic people care about.

Q8: Old check carbon copies
What should I do with old check carbon copies? How long should I keep them?

- Larry

Since they really don’t take much space, I keep them for at least seven years. I store them in the original check boxes that they came in.

Beyond seven years, I think it’s safe to destroy them.

Why keep them around? You never know what kinds of things might pop up out of the past, and the more documentation you have, the better. Since they don’t take up much space, why not keep them in a drawer somewhere?

Q9: Interesting candy story
I have a story that I don’t remember, but was retold by my Mom enough times.

I was less than five years old and in the grocery with my Mom. I wanted some candy, my Mom said no, I made a scene, and so I got swatted. I am older, this was the 50′s, and was normal. My Mom did’t like swatting me in public, so when we got home and both of us had calmed down. She sat me down for a talk. Your Dad goes to work and makes some money. That money has to cover all our needs, so we have to spend it wisely to make sure we have enough money for everything we need. So according to the story, I would later ask, do we have enough money to buy me this candy today?

So pretty much all the rest of my life has been do I have enough money to buy this whatever today. I have grown to enjoy savoring the process of saving the money, deciding, finding a good deal, buying, and often waiting for delivery as much as having that whatever. I also tend to buy good quality of important whatever’s, but that is different story.
- William

This is a great story.

I think that a lot of people forget to ask that question in the process of fulfilling their desires. They’ll see something they want and the question of whether they really have the money to buy it never crosses their minds – at least, not until later.

I know that was certainly the case for me for quite a few years.

Q10: Child interested in politics
My twelve year old child is really interested in politics. She’s following the various candidates running in 2014 in our area and is pretty vocal about her views on them. How can I channel this interest into something that might turn into a career if her interest holds?

- Alan

I’d contact the campaign of one of the candidates she’s interested in and ask how your daughter could help. There are a lot of simple tasks that need to be taken care of in a political campaign that a twelve year old could handle.

Be aware that the tasks might not be exciting, so you may want to break them up into small chunks. However, if you find the right person inside the campaign, they’ll help you with this. Some will really like the idea of getting a twelve year old excited about politics, while others will see it as a chore.

I would also make an effort to get her to every opportunity to hear or meet a candidate that I possibly could.

The nice thing is that none of these activities will really cost you anything. They’re all more or less free – but they can all channel someone’s passion about politics.

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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