Reader Mailbag: Picnics

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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. Snowballs and variable rate loans
2. Frugal haircut strategy
3. Startup farm funding
4. Sunday paper cost effective?
5. Debt payoff or emergency fund?
6. Hiding money from social network
7. Car payment options
8. Cost effective car washing
9. Investing beyond savings accounts
10. Trade school

I really enjoy picnics. I love loading up a basket or a backpack with a meal, going to some unusual place, spreading out a blanket, and enjoying a meal with my family and/or with friends.

To me, spring has officially started when we go on our first picnic. We would have done this over the weekend, but our family had several Easter weekend invites, so we didn’t get out there.

Saturday has a high in the sixties. I’m already planning the picnic basket.

Q1: Snowballs and variable rate loans
I have about $65,000 in student loans to pay off, with rates that vary between 4.5-10%.

I am working hard at paying my debt down, but I’m torn between which loan to start paying off first. I’ve been working on paying off my loan with the highest interest (about $16,000 at 10%), but as I’ve been reading more, I realize that my next highest loan ($4,000 at 7.14%) might be a better idea because it’s a variable interest rate. All of my other loans are at lower fixed rates.

Do you think it’s smarter to try to knock this $4,000 variable rate loan out, or should I just concentrate on paying down the $16,000 loan? I’m just worried that the stability of that variable rate loan.

(To help, it will take me about 4 years to pay off the 10% loan, at which point I’d snowball that payment towards the variable rate, or I could knock this variable rate loan out in about a year)
- Megan

From a pure interest rate standpoint, you should always pay down whatever debt has the highest rate at the moment. Don’t worry about what interest rates might be in the future. Focus on what the rate is right now.

Given that, you should focus on paying down the $16,000 loan.

However, there is still logic in paying off the other loan first. You’ll get it paid off far faster than the bigger loan, which will improve your cash flow and give you a sense of success over your debts. This is the Dave Ramsey plan, and I think it has value, too.

My take? Pay off the one you want to pay off first. The interest rates are close enough that you’re not gaining a whole lot by doing things “perfectly.”

Q2: Frugal haircut strategy
I’ve gone to the same barber for twenty years, but now he’s closing up shop and retiring to Texas. This means I need to find a new barber. I went to two different places in town. One did a so-so job but was cheap. The other one did a great job but was really expensive. How do you find a good barber for a good price in a town?

- Frank

Obviously, trying barbers until you find one you like is a good approach. Don’t be afraid to just keep trying them. If you find one has a high price, don’t get your hair cut there.

Another approach is to just ask around. Find out where others get their hair cut. This is the type of information that people are usually happy to share.

Generally, I just go for the place that gives me a decent haircut at the lowest price. I have two places I like, but one of them has very erratic hours.

Q3: Startup farm funding
I am wondering if you know anything about start-up funds for beginning farmers? It’s an occupation that seems to be going by the wayside with increased globalization. I’d really like to start a CSA after college with my partner who has also had this agrarian dream his whole life. I have read about guaranteed loans from the Farm Service Agency as well as direct loans, but it seems like the funding for those is used up quickly, and to whom, I’m not sure. I am overwhelmed by the funding process to say the least and was hoping to acquire just a touch of your sage advice as to the steps you would recommend taking.

- Diane

I would talk to other CSA owners. I’d find ones that are reasonably local, but not ones you’d be directly competing with, and ask them how they acquired startup funding.

Finding these CSAs will take some work. You might want to look for any CSA conventions that are near you. If you can find one, it will likely be worth your while to attend, but you’ll need to make value out of that attendance by talking to lots of people.

My experience has been that people who succeed with CSAs in my area either leveraged an already-existing farm or had a substantial bankroll when they started.

Q4: Sunday paper cost effective?
I still subscribe to our local Sunday paper. I don’t read it most weeks, but I still feel like I get my moneys worth out of it. I get coupons and store flyers, and I get materials for wrapping gifts (kids love getting presents wrapped in the funny pages).

- Aaron

I subscribed to our local Sunday paper for a very long time, but I’ve found over the last few years that the things I used it for were simply drying up.

I would often get Sunday papers without coupon sheets and the comics page (which I also used for wrapping gifts for kids, like you do) essentially vanished. It stopped being a value for me, especially given the availability of coupons online.

However, if your Sunday paper still has great coupons and flyers and such, it can still be a good value if you put it to use.

Q5: Debt payoff or emergency fund?
I’m roughly 3 years out of college w/ about $17K in student loan debt (down from about $25, so I’m not doing too bad w/ repayment so far). I’m about to receive a nice bonus in a few weeks which will likely be about $20K after taxes. Part of me wants to just completely pay off the loans and get the monkey off my back. The other part of me thinks there’s definitely something to be said for having a nice chunk of liquid assets in a savings account for an “emergency fund” as you call it. I know that as far as net worth goes, I’m in the same boat regardless of what I do, but I just don’t know what the RIGHT thing to do would be. I’m guessing the answer is probably somewhere down the middle…but I’m not sure what a good compromise would be.

- Erica

The answer is “somewhere in the middle.”

I usually encourage people to have one month of living expenses in their savings account as an emergency fund for each dependent they claim on their taxes plus 1% of the value of their home if they are a homeowner. I don’t know which of these things apply to you, but it should be fairly easy to figure.

I’d put the rest toward paying off the debt. If you have no debt, it doesn’t hurt to have another month or two of living expenses on hand.

Q6: Hiding money from social network
I have a side business that’s become really successful in the last few years. I instantly sell everything I make, even with a pretty big markup. In 2012, I made more from my side business than from my regular job. Anyway, I have paid off my mortgage and now I’m starting to build up some nice savings. My problem is that some of my friends are realizing that I am making a lot of money now and there have been some comments about it. How can I keep that kind of thing to a minimum? I don’t have any intent of changing my life. I just want security and maybe the ability to switch to my business full time.

- Victor

You can’t change what people might say about you unless you were to give up your side business, which you should never do. Instead, just keep doing what you’re doing. Keep saving up for your long-term plans and transition yourself to working full time on it.

If your success with your side business actually becomes an issue with a friend, then that friendship was pretty poor to begin with. I can’t imagine being upset with a friend because they succeeded at something they worked hard at. I can imagine wishing I had their success, though, but I can’t imagine being mad at them about it. If I was, it would be an indication that the person wasn’t really my friend.

Don’t sweat it. If a friend drifts away, that’s life. At the same time, keep living your life as you were living it.

Q7: Car payment options
I have ~$13,000 left on a car loan at 4.59% interest. My payment each month is $280, but I am currently making bi-weekly payments of $300. The payments first pay the interest and then are applied to the principle. I am wondering if it would be better to make one payment of $600 each month and how much of a difference it would make in the final cost of the car, but I can’t crunch the numbers to figure it out. Any help would be appreciated!

- Linda

Paying $600 a month instead of $300 every two weeks ends up extending the life of the loan a little bit. Assuming that you have about four more years to go over the course of your loan, the difference will add up to about two and a half monthly payments – about $1,500. You’re better off making the biweekly loan. This is just using my back of the envelope math.

This is true with virtually any loan where you’re choosing between making a monthly payment or making half as big of a payment every two weeks. The smaller payment every two weeks will pay off your loan faster than the monthly payment. Why? With the biweekly payments, you’ll actually make 26 payments over the course of a year. If you were making $100 monthly payments, you’d pay in $1,200. On the other hand, if you make 26 $50 payments, you’d pay in $1,300.

Biweekly payments are a great way to pay down a debt quickly, particularly if you’re paid on a biweekly basis.

Q8: Cost effective car washing
My wife and I have spent the whole winter talking about how often someone should wash their car. We live in an area that gets maybe ten inches of snow per winter but we do get a fair amount of ice so they use a lot of salt and sand and cinders on the road. How often should we wash our car during the winter?

- Jim

Your best bet is to wash it yourself – or at least rinse it. The best way to do it is to use a power washer on the lowest setting and the widest spray. Do this every few days. I’d do it on any day that was reasonably warm outside so that you don’t mind doing it and the water doesn’t freeze quickly. Fully wash it yourself on the really nice days.

If you’re not going to do this and you’re just driving through a car wash, I’d do it once a week or so. The cost of this will add up over time, but it’s cheaper than a new paint job and other replacements every several years.

The less frequently you wash it in the winter in an area where there’s salt on the road, the faster you’ll start to see signs of rust. Your best approach is to just rinse your own vehicle yourself with clean water on a very regular basis, getting that salt off of your car.

Q9: Investing beyond savings accounts
I am finding that banks pay an insulting amount of interest $…

I have toyed with how to invest my extra $ – though have no one I trust for advice!

Any recommendations please???
- Steve

The problem is that there aren’t good ways to invest your money that matches the liquidity and security of savings accounts.

Almost every investment you make succeeds in two of these three areas: risk, liquidity, and return. Savings accounts have low risk and great liquidity, but they have a low return. Stocks have great liquidity and a solid return over a long period, but they have pretty high risk over the short term. Real estate often has relatively low risk and a solid return, but it’s not very liquid.

What are you willing to give up here? If you don’t like your savings account, I’d have to assume you’re willing to trade either liquidity or risk for a better return. You have to decide what you want to trade.

Q10: Trade school?
My son has been talking almost entirely about trade school lately. He claims that he can go to electrician’s school and come out of it with no debt and have a good paying job before he’s twenty. I think it’s very important for him to go to college and if he wants to go to electrician’s school after that he can. What do you think?

- Adam

I don’t think there’s anything wrong at all with trade school. I have multiple family members who went to trade school and have built very nice careers for themselves.

I consider college to be a valuable experience for the right person, but for quite a lot of people, the value of college just isn’t apparent. If a person is committed to going to a trade school, I see no reason to make them go to college.

Not everyone follows the same path in life.

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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