Reader Mailbag: The Calm Before the Storm

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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. Using a blog for sales
2. Emergency document contents
3. No 401(k) at work
4. Local bookswap
5. Whole life insurance
6. Handling windfall
7. Pen-and-paper games
8. Negotiating with credit cards
9. Hand sanitizer or soap?
10. A philosophy

As I write this, a giant winter storm is expected to blanket much of my state in snow and toss that snow around with some impressively high winds later today and tomorrow.

There’s this odd “calm before the storm” that always hits before a big storm comes in. People are preparing. The weather almost seems to come to a complete stop. People begin to anticipate school cancellations and so on.

That’s what it feels like right now.

Q1: Using a blog for sales
My wife is interested in making products such as beanies and key chains and selling them. What would be the best way to go about this? We’ve looked at WordPress and the possibility of using a blog. We’ve also researched the Etsy website with mixed reviews. We would appreciate your help so much! I love following your blog.

- Randy

I would go with Etsy. The biggest problem I’ve heard with Etsy is that it doesn’t scale well when people try to start larger businesses there. For someone just getting started, Etsy is going to bring buyers to you far more effectively than starting your own e-commerce site.

I have several friends who use Etsy for selling their stuff on the side and they’re pretty happy with it.

As for a blog, the purpose of it shouldn’t be just to sell your stuff. You should just talk about the field in general that you’re involved with – how to do things, etc. – and then just link to your stuff on the sidebar or use the products you’re making as an example of how to do it. Blogs that are pure sales pitches don’t get many readers. I’d consider using one in conjunction with Etsy, but not as a replacement for it.

Q2: Emergency document contents
I’ve been thinking about writing up a document with all of our account information and stuff and putting it in our safe deposit box. Is there anything else I should be putting in that document?

- Jim

Everything you can think of that might possibly be useful should be in that document. Insurance information of all types, all of your account information, the location of valuable personal effects, and so on.

One big tip: don’t actually type your account details into this document. Print out the document, then write that information in by hand. You don’t want such info sitting around in a document on your computer’s hard drive.

Another big tip: make sure it’s a hard copy. Don’t rely on a copied CD for this. A piece of paper requires no additional software or hardware and can’t reasonably degrade over fifteen or twenty years.

You should also make sure to update the document regularly. Doing it annually, perhaps when you do taxes, is a smart move.

Q3: No 401(k) at work
I started working for a company in 2008, and after a few months they decided to pull the plug on the 401k matching…you can still join but they won’t do a match (i think they say it’s like a 402b) …. question is should i still do the 401k with them or do i do it on my own or is there an alternative? I’ve been putting away some money in an ING Orange account in lieu of contributing to 401k..

- Roger

Without a match, your best bet for retirement is probably to use a Roth IRA. I tend to believe that income taxes are going to go up over the next few decades, so Roth IRAs are a very smart place to put money.

You can open a Roth IRA at most investment houses – I use Vanguard. It works a lot like a savings account. You take money out of your checking and deposit it in there, often as an automatic regular transfer. When you reach age 59 1/2, you can start taking money out of a Roth IRA and everything you take out is free from federal income tax.

You do have to choose investments within a Roth IRA, but most Roths offer an option for a “target retirement fund.” Choose the target retirement fund with the date closest to when you expect to actually retire and put all your money into that fund.

Q4: Local bookswap
My wife is in this monthly bookswap thing I thought might be interesting to you. They have it once a month at the local library. People pay $1 and are allowed to bring 20 books to swap. They then just hold them up in front of them and wander around looking for others who have books they might want, and then swap them. My wife makes about six swaps or so a month, which keeps her in books.

- Jerry

This seems like a pretty good idea. Twenty books is a good number for people to carry around (if they’re paperbacks) while they look for potential swappers. I can imagine holding my stack in front of me with the spines out so people can look at them as I wander… and, ideally, others are doing the same.

It also seems like a good way for the library to raise $20 or $30 without much effort.

The only thing to remember with book swaps (I’ve done several different kinds, but not in this format) is that if you go in there expecting to find one or two very specific books, you’re going to go away disappointed almost all of the time. Go in there with a very open mind and you’ll enjoy it a lot more.

Q5: Whole life insurance
I’ve been receiving and reading The Simple Dollar blog posts for roughly 3 years (give or take). During that time I have been able to build a 6 month emergency fund, fund some money into a 401K (approx. $17K) and open a Roth IRA (fully funded for 2012 at $5K). I am currently 27 years old, not married and do not have any kids. My goal for 2013 is to fully fund the Roth IRA again ($5.5K for 2013) but am no longer certain that the 401K is the best investment vehicle to put my dollars in.

I have recently been approached by someone at Northwestern Mutual to discuss permanent (some people call it whole) life insurance as an investment vehicle. A majority of the articles I have read say that it is a bad investment, but when I look at the numbers and how this can be structured, it certainly seems like a great idea (especially for someone like me who can put money into this for the next 30+ years).

What kind of advice would you give to someone in my situation?
- Jenna

The problem with such a policy is that if you get a quote for a 30 year term policy, figure out the difference between monthly payments, then look at what happens if you invest that difference every single month in something that returns 7% annually, you’re almost always going to just blow away the whole life policy. Even worse, if that insurance company fails, you’re left with nothing.

Whole life policies often show off that list of numbers showing the growth of the investment because the large numbers at the bottom look impressive, but if you start deconstructing it a little bit, it often turns out to not be that great of a deal.

I stick with term policies and do my own investment.

Q6: Handling windfall
My husband and I have a very fortunate circumstance that may occur soon. Our crazy-rich neighbor has decided to enlarge his ranch, and that includes buying up several properties that border his. He’s said to be offering WELL over market value, according to our other neighbor who is closing on his sale tomorrow. The value of our home and 1 acre lot are about $200K. We owe $100K on our mortgage, and my husband has an IRS debt of $60K. We believe the offer on our home will be between $500 and $600K. (Our cliffside home overlooks his walmart-sized bedroom- so he really wants our place.)

A new home will cost us around $300K. Is it smartest to pay outright for this house, or should we take out a mortgage and leave some funds in savings? Our credit is utter crap after going thru a mortgage modification last year, but with a large downpayment we could probably get a loan. I know we’ll also have some taxes owed but I don’t know anything about capital gains and how they work.

We’re both around 50, and have very little in savings (only about $2500). This is a miraculous offer and I want to be sure that we handle it in the smartest way possible. The thought of having no mortgage debt is incredibly enticing, after having lived paycheck to paycheck for the last decade, and we’ve discussed banking at least $1000 a month in lieu of making a house payment, but we could really use advice.
- Shelley

You probably won’t have to pay a lot of taxes on the sale. Assuming you’ve lived primarily in this home for the last five years and you’re married and co-own the home, you can exclude $500K of the gains on the sale from your income taxes. If you bought it at $200K and it’s bought from you at $600K, you shouldn’t owe income taxes on the gains, though, as always, you should check with your accountant. The IRS is pretty nice when it comes to home sales.

If we assume you get $500K out of the sale and then use it to pay off the $100K mortgage, you’re left with $400K. If you then build with $300K of that, you’re still left with $100K in the bank. That’s exactly what I would do.

Now, don’t ever count your chickens before they hatch with a situation like this. Don’t start planning and buying before an offer is on the table. Wait and see what happens before doing a thing.

Q7: Pen-and-paper games
Do you know of any really good games that can be played with a pen and a piece of paper, or maybe with just a few other things (like pennies)? I’m looking for thoughtful games to play in fifteen minutes or so with my wife and/or my son at restaurants while we wait for our meal.

- Edward

There are tons of good pen and paper games out there. To get you started, I highly recommend the book A Gamut of Games by Sid Sackson, as it’s just a great collection of these kinds of games.

My favorite one – and apologies if this has been published somewhere else, and I wouldn’t be shocked to discover that it was actually in the above book, which I don’t happen to have right here for reference at the moment – is called “Hold the Line.” Just draw 16 dots in four rows of four. Then, one person draws a straight line connecting any two dots in the grid. This line can have other dots in the middle if you’d like – it’s up to you. The next player then draws a straight line connecting one of the two ends of the first line to any dot in the grid in the same way, except that they cannot cross any line that already exists and can’t end on a dot that’s already been crossed or used as an end. The next player can use either of the two open ends as a starting point for another line. The winner is the last person who can draw a line.

That game is actually very challenging, and if you expand it to a 5×5 or a 6×6 grid, it will leave you really scratching your head. It’s far more challenging than the seemingly similar “box game.”

Q8: Negotiating with credit cards
Can i deal with credit cards to lower the amount i owe them. 68 yrs old no work. Aprox 14,000 in debt.

- Robert

You can certainly do this, but there’s never a guarantee for success.

Your best method is to call the number on the back of the credit card, then ask to speak to a supervisor as soon as you get to a live person. Tell that supervisor that you are simply unable to pay your bills and that you need to either lower your payments or your total debt amount or you’re going to have to default. See what they come up with.

Credit card companies would rather work out an arrangement this way than hand your account over to collections, because that’s an even bigger loss for them. However, some companies simply won’t negotiate. You should also expect that your credit report will take a negative hit for this, but not a devastating one.

Q9: Hand sanitizer or soap?
Which is less expensive – a big jug of hand sanitizer or soap for a sink? Is washing your hands regularly cheaper than using hand sanitizer regularly?

- Sue

It really depends on the bargains you find. I can’t say that one is far cheaper than the other based on my own shopping experience.

Having said that, they’re both useful in keeping your hands clean and keeping germs away, as described here. If your hands are pretty much clean anyway, hand sanitizer does a better job of eliminating germs, but after doing something where you touch something foul, you really should use soap as it cuts away large amounts of grime that hand sanitizers can’t deal with.

There’s no reason not to get a big jug of both and use them each when appropriate. Wash your hands after food prep or using the bathroom or before a meal. Use hand sanitizer at other times. That’s what I do.

Q10: A philosophy
My great grandmother (a Vermonter who died at the age of 90 in 1953) had a counted cross stitch in her kitchen that stated the following:

Use it up
Wear it out
Make it do
Do without

She lived the idea and passed it on to my Mother, who embraced it and passed on to me. Like you I save bubble wrap and reuse it. I save glass jars and lids to reuse. I have t-shirts in my dresser that date back well into the 1970s and when either my wife or I have to finally say goodbye to a pair of truly worn out blue jeans, there is a certain sadness we feel. I drive a 1998 GMC Jimmy that I bought new in ’98 and it has about 350,000 miles on it. My favorite bicycle, a Trek 820 purchased in the early ’90s, has traveled with me as I’ve managed various telecom projects around the world.
- Eric

That’s a great philosophy.

Your comment about saving bubble wrap made me smile. I have a large bag out in the garage where I keep packing peanuts. Whenever we get something in the mail that has packing peanuts, I save them in this bag. Whenever I ship something – boom, I have a bunch of packing peanuts out in the garage.

Similarly, I often wear clothes until they’re literally falling apart. I usually save nicer stuff for times when I’m outside the house, but around the house? I wear some pretty beat-up clothing almost every day.

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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