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. Cash flow after debt repayment
2. Target card response
3. Expiration date question
4. How much for retirement?
5. Buying food for elderly grandmother
6. Food pantry appropriate?
7. Figuring employer match for retirement
8. Dollar store tactics
9. Reading 100 books?
10. Income calculator
I didn’t go to sleep until almost 2 AM on Christmas Eve… technically Christmas morning. Our children woke us up well before six. This follows a four day stretch where I did not get to bed before midnight for several days in a row.
Unsurprisingly, I have the worst cold I’ve had in years. Exhaustion and poor sleep will do that to you.
On with the mailbag…
Q1: Cash flow after debt repayment
We are well on our way to having zero credit card debt, which will be an amazing blessing now that we’re expecting the birth of our first child. So thank you for that!
My question is about the best next step for using the cash that’s now freed up. I want to plan better for our future, so I’m hoping to do something with our money (beyond our emergency fund) that actually earns us some interest towards our retirement. I’m very much a beginner when it comes to investing, although I’ve tried to do some research of the subject. The main thing I see over and over again is that workers should be contributing to their companies 401k plan (and taking any match they might offer). Both my husband and I work for a very small business (4 employees total) so there is no 401k (and likewise no matching bonus).
Is there another good way to invest our money longterm since we don’t have this avenue open to us? Many blogs seem to focus heavily on making contributions to 401k funds — so much so that I’m finding it hard to figure out what to do instead.
In your situation, you should invest in a Roth IRA.
A Roth IRA is a special kind of account you sign up for through an investment house. For example, my own Roth IRA is through Vanguard. You deposit post-tax money into the account, meaning that you use money from your checking account rather than directly from your paycheck. Once you put money into the account, you have the freedom to choose among many different investments.
The great part about a Roth IRA is that if you actually start withdrawing during retirement (in your sixties, generally), the gains are tax-free. Plus, there’s a lot of freedom to withdraw contributions if necessary.
Unless you’re well into the six figures for income, this is almost assuredly the best option for your retirement savings.
Q2: Target card response
During the two week period where Target’s computers were compromised, I used a credit card there twice. I checked my account and everything looks fine. What should I do?
The best thing to do is to call your bank, tell them that you believe you used your card at Target during the period of compromise, and request a new card. They should close your old number instantly and send you a new card that should arrive in a few days.
That’s the safe route. If you do this, then the theft of your card number won’t affect you (unless you’re already affected before the cancellation, of course).
If you do that, make sure to remember to transfer all automatic payments to the new card as quickly as possible.
Q3: Expiration date question
My fiance basically throws out anything that’s past the date on the package. When I grew up, my parents always treated those dates as a “freshness” date and went by smell and their own common sense. I think my fiance is being wasteful.
Generally, expiration dates are “best if sold by” dates, meaning that beyond those dates the manufacturers won’t make any claims about freshness.
I basically go by this NPR article. I’ll use the “sniff test” for milk and the “eyeball” test for bread and cheese. With canned goods, if it’s in the cupboard and smells fine when I open it, I use it.
Why? Food-borne illnesses usually have nothing to do with shelf life. Shelf life, for most things, just means how long you can expect it to be really fresh.
Q4: How much for retirement?
I have a question regarding the amount of money needed to retire. Most articles I read used 80% of your salary when you retire. I live on what goes into my checking account each month, not what my salary is. Let’s say I make $10,000 per month. After all my deductions, I have $7,500 that actually goes into my checking account at the beginning of the month. That is what I spend. $7,500x 12 gives me $90,000 annually. Given some expenses that go away in retirement, I think I will need $80,000 cash to live on in retirement. Tell me what is not accurate about my logic.
That’s reasonably accurate. The reason that the 80% number is suggested is something you hint at yourself – many professional expenses vanish when you retire.
Without a commute, business lunches, business clothes, and many other little expenses, the spending level of most people drops quite a bit. The 80% is just a rough estimation of that.
For a lot of people, spending $80,000 a year post-tax seems like a lot of money. It’s not hard to cut a little spending if you have that kind of money and are wondering about making ends meet in retirement.
Q5: Buying food for elderly grandmother
For the last several months, I’ve been doing a weekly grocery shopping trip for my grandmother. She writes stuff on the list like “bread” and “tuna” and I never know what to get. So I’ve been picking out expensive stuff for her, but when I get to her house, I tell her that it cost less than it actually did because I feel like I might have bought stuff that was too expensive. I don’t mind doing this but it is starting to add up. Thoughts?
You should sit down with your grandmother and talk about the things you’re buying! That’s really all you have to do.
Just go through her list and ask her if generic is okay for each of the items. If it is, then just get the generic.
When you come back, don’t tell her a number out of your own mind. Hand her the receipt unless you actually want to cover some small portion of the grocery bill. You shouldn’t feel bad about handing her the receipt, though.
Generally, there is no “test” for using a food pantry. The philosophy is that if you walk in the door of a pantry, you must need food and they will help you.
A thing to note is that much of the food at food pantries isn’t the highest quality, though that can vary a lot. You might get a box of generic items, for example, or you might get some name brand items depending on who’s been donating lately.
If you feel as though you need a food pantry, you’re probably fine going there.
Q7: Figuring employer match for retirement
In your recent post on minding the gap between spending and income, you advocate contributing 15% of gross salary to retirement. Do you include the amount that your company is contributing (eg your 401k match), or is that gravy on top of your 15%?
For example, you make 60k gross salary and your company matches up to 5k per year.
So, do you put in 9k yourself with the 5k from your company and end up with 14k total (total contribution that year = 23%).
Or do you put in 5k and get 5k match (total contribution = 10k = ~16%).
I generally include employer matches in any calculations I do for retirement. I view such things as essentially a salary “bonus” that you should be collecting, so you should count it.
My reasoning there is that it’s simply more savings. If you’re not getting a match, you’re going to try to hit that 15% mark without it. The match is simply more savings.
There can be a case made to not count it in order to push yourself ahead of the retirement curve, but that’s mostly a psychological tool to convince yourself to save more than enough.
I generally don’t shop at dollar stores for household supplies or food, but if I have strange items on my list (like ice cube trays), then I’ll stop in.
As with any store, the best approach is to only go there when you have a need that might be fulfilled there. Have a list when you walk in the door and look for just that item (or items).
I have found some good prices on specific items at dollar stores, but I don’t find them to be great places to regularly shop.
I read books for about two hours a day, with some days containing longer reading periods. Book reading is my primary form of entertainment and enlightenment.
I enjoy reading “challenges,” so I thought it would be fun to push my reading a bit harder this year. I read about 70 books in 2013, so with a 30-40% increase in reading time, I should get there.
This gives me a good reason to put aside other unnecessary hobbies to devote more time to reading. Plus, I can read while on a treadmill quite easily, so I can both read and exercise.
It’s all about the time. If you put time aside to read, it’s easy to read a lot of books.
Q10: Income calculator
I want to know how much money I (or: a household) should try to make every year, but I don’t know how to calculate that amount. I really have no idea whether $50,000 will be enough, or whether we’ll need twice that or more. Obviously, the amount is a function of geographic location, long-term goals (owning a house, having a lot in savings, supporting family through college), age, number of children in the family, certain life-style choices, etc. I think the problem is that I don’t know all the things that the amount is a function of, so I can’t get an accurate picture.
I’m at a good point in my low-paying-but-fun career to consider giving it up for something more lucrative. But I don’t know exactly how lucrative I should be aiming for, whether I can do anything that would earn me that much, or whether it’s significantly more than what I already make. Anyway, some kind of income goal calculator would be helpful in deciding each of these questions. Where can I find one, or who can I talk to, or do you have any advice yourself? Getting a concrete number (or at least a small range) is crucial. I don’t want to give up my career if I don’t have to, and without a concrete number, I don’t know whether I have to.
It’s really hard to calculate this kind of number because different people have drastically different expectations and lifestyles.
For me, I tend to fall back on Harvard psychologist Daniel Gilbert, who basically says that a family of four only needed about $40,000 a year to be happy, a number estimated around the turn of the century. I’d bump that up to about $45,000. I’d also then compare that with cost of living for your area, because the number is certainly going to be higher in some areas and perhaps lower in others.
Again, this is a really rough number that people will endlessly quibble about, but it’s a start, at least.
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.