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. Stocks before emergency fund?
2. Curbside furniture salvage?
3. Planning for early retirement
4. Alcohol and holiday celebrations
5. Lending money to a friend
6. Do CDs make sense?
7. Public speaking opportunities
8. Contract fine print
9. Different choices?
10. Best books of 2013?
Last winter, our snowblower failed to start during the worst snowstorm of the year. Several times during the spring, summer, and fall, I tried working on it, seeing if I could figure out why it wouldn’t start.
On Friday, my snowblower went to the repair shop. It’s the first time in a very long time I’ve had to have someone besides me repair anything besides an automobile.
On one hand, I feel like I failed. On the other hand… we’re expecting a lot of snow this winter.
Q1: Stocks before emergency fund?
I do not have a good emergency fund set up yet but I am curious about investing. How do i get started on investing in stocks, and what books do you recommend as far as reading to learn more about playing the stock market? How much does a person need in emergency funds before I can play with stocks?
Before you start investing in stocks, I would have an emergency fund with at least two months of living expenses in it plus another month for each child in your home. I would also have all of my high interest debt paid off – basically everything besides a mortgage.
Even when you begin investing, I would not “play around” in the stock market with money that I would ever actually need in the future. Sure, it’s unlikely that you’ll lose everything, but it is fairly likely that you’ll lose at least some of the balance.
For a “beginner’s guide to stock investing,” I actually think TheStreet has a pretty good guide. There are others out there, too, but that one is a pretty good start.
Q2: Curbside furniture salvage?
My oldest brother has a really interesting side business. If he sees a decent piece of furniture sitting out along the road, he’ll check for permission and pick it up and take it home. He then refinishes and repairs it and sells it. He’s put several hours and about $10 worth of stuff into a freebie desk and sold it for $500 before, but most of all, he has a lot of fun doing it. He’s 77 by the way.
This is a really cool idea for a side business for someone who enjoys basic woodworking.
My only concern if someone were trying to do this is the “permission” aspect. Before you snag something off the curb, you should make sure that you have permission to go onto someone’s land and take an item, even if it’s apparently trash.
He could also go to dumps and dig around, provided of course that he has permission to do so. It could be another source for him.
Q3: Planning for early retirement
As we are all aware (I hope), the Social Security benefits for early retirement are quite a bit less than those if one waits until their “full retirement” age, and even more so if one waits until age 70 to retire (I believe it’s about half). Knowing that SS will be a part of one’s retirement income, is it wise to plan an early retirement (age 62 or earlier) as you will receive less per month and also have that many more years of living off savings as your job income is gone? Would you plan on pulling from your ira or 401k starting at age 62 for living expenses?
That’s a difficult decision and it depends a lot on your standard of living and whether or not you can make it (with money to spare) on just your retirement savings for a few years.
In general, though, my feeling is that if you’re retiring at a point where you have to take Social Security at a level below the highest monthly amount, you should probably keep working.
For example, if you retire at age 62 and don’t have much savings at all, you’re probably forced to take Social Security at age 62 at the lowest level just to make ends meet each month. This is going to put you in far worse shape at age 70 than if you had been able to wait.
In other words, if you’re retiring at 62, you should ideally be able to pull just from your retirement accounts for a few years until your Social Security benefit levels go up. Otherwise, I’d suggest that you’re either retiring too early or you have a very, very low cost of living.
Q4: Alcohol and holiday celebrations
My husband and I are hosting a weekend-long Christmas celebration for his extended family this year. While we think we have our food plans in hand, we are concerned about alcohol. We don’t drink, but all of his siblings enjoy both wine and beer. We are trying to be careful with the budget here, which means we want to buy enough but we don’t want to buy a bunch extra that we don’t need. What would you suggest?
It really depends on the drinking habits of your guests. If you’re unsure, call up the sibling that you know the best and ask for some help in assessing everyone’s drinking appetites.
If you buy too little, since Christmas is on a Wednesday and you’re doing this on a weekend, one of you can simply go pick up more if necessary. While it would be nice not to have to do that, of course, I wouldn’t stress out about not having quite enough.
If you do buy too much, you can always send some with guests as they leave. Give them a few bottles of beer or an unopened bottle of wine as they exit.
Q5: Lending money to a friend
I loaned a so called friend some money and they refused to pay it back. This is going on for months. What can I do I want my money back? I’m trying to do it the right way before I go nuts.
Unless you have clear documentation of this loan, you’re probably not getting your money back. Even if you do have documentation, it will probably require a trip to court in which the lawyer will eat up much of what you get back and there’s no guarantee of that, either.
This is why it is a horrible idea to loan money to friends or family. There’s often no easy way to get your money back. You’re simply relying on good faith that they will pay you back and, like it or not, good faith often isn’t enough.
Unless this is a large amount of money, I would write this off – and I’d be very wary of this person in the future.
Q6: Do CDs make sense?
My in-laws have a lot of their money tied up in long-term CDs at the local bank and they live off of the interest and their Social Security. Since the interest rates have gotten so low, they don’t have much money. Do you have any suggestions for what else they could do with their money that would get them a better return?
Here’s the problem: every time you choose to chase a greater return than the FDIC-insured offerings at your local bank, you add risk to the equation. Even saving money in a bank has a bit of risk, but thanks to FDIC insurance and regulation, it’s about as riskless as one can get.
Virtually everything else that you can invest your money in is more risky. You have some chance of not getting a return at all and actually losing money.
I would bet that part of the reason that your in-laws have invested in CDs is because of the very low risk. Before you start exploring other options with them, you all need to be clear that a small amount of risk is going to be added to the equation to have (on average) far better annual returns.
The first thing you should do is join a public speaking group in your area. Toastmasters is one such group that is found in a lot of areas. These types of groups give you many opportunities to hone your public speaking abilities and they’re sometimes used to find public speakers.
The other thing you should do is take every chance you can to speak in front of a group, whether it’s paid or not. In order to become a well-paid public speaker, you need to have an established reputation, and the only way to do that is either to speak frequently and with success or to have strong achievements in other areas.
New people generally cannot walk straight into high-paying public speaking gigs, but it can happen. It just takes a lot of work.
Q8: Contract fine print
I was just at [my cellular provider] where they offered me an iPhone for one cent. All I had to do was agree to a pretty good price on a data plan that goes up in price after a year. What am I missing? Why not just cancel in a year and keep the iPhone?
Most contracts like this have an early termination fee.
Most likely, to get that one cent iPhone, you have to sign a two year contract where you agree to remain a customer for two years. Usually, the contract specifies the rates and, as you’ve seen, a lot of the time, there’s a really good rate for the first year and a much worse rate for the second year.
If you try to cancel that contract before the two year mark, there’s usually a stiff early termination fee. It depends on the contract, but you’ll often see termination fees well into the three figures. In other words, if you try to walk away, you’ll owe them quite a bit more than $100 for walking away early (again, depending on the contract).
That’s the reality of those “teaser” deals. They’ll either offer you a cheap phone up front or a cheap rate for the first year (or both, apparently). To get that, you have to sign an agreement to stick around for two years and if you don’t the price is going to go way up.
Q9: Different choices?
I find we have a lot in common, both in our early 30′s with kids, both made a lot of money mistakes in our 20′s and now working hard to make up for it. One of many things that keeps me on track now is looking back and thinking about all the money I wasted and mistakes I’ve made. I like to think about how things would be different if I hadn’t bought the thousands of dollars worth of stuff I didnt need, or if I hadn’t had to pay thousands worth of interest on loans. Maybe I would be driving a more reliable/comfortable vehicle, maybe I could have built a house exatcly to my liking rather than buying one that “just going to have to do for now”. I think I have wasted enough money on mistakes that I could have paid for my kids future education or a good chunk of retirement.
Just wondering if you’ve ever thought of your situation this way. Would be interesting to hear your thoughts. How would your situation be different now?
I used to think about this quite a lot and, for a long time, it provided me with some great motivation to keep on a better path.
Now, though, I can’t help but wonder if those mistakes weren’t valuable in their own way. They taught me in a very clear way how not to do things. I might be on a far better path now, but would I have found that path without the mistakes first?
I don’t know. What I do know is that I know a better way now and I’m glad that I found it, whether it required me to make those mistakes first or not.
I get several of these emails each December. I think quite a few readers like to hear my book recommendations.
Anyway, my favorite book I read this year was The Shallows: What the Internet Is Doing to Our Brains by Nicholas Carr. While it’s not a 2013 release, it was easily the book that made me reflect on my life and choices more than any other this year. I can’t help but see echoes of this book everywhere.
My favorite 2013 book I read this year was Nathaniel Philbrick’s Bunker Hill: A City, a Siege, a Revolution. I read it while traveling to Boston and the surrounding New England area, so while I deeply enjoyed the book, it may have been heightened by the fact that I was walking around the areas described in the book during the day and often reading it in the evenings.
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.