Reader Mailbag: Writing Preparation

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. Investing small amounts
2. Overcoming jealousy
3. Nutrition versus budgeting
4. Percent into 401(k)?
5. Improving credit score
6. Best self-improvement books?
7. Charging boyfriend rent
8. Lying spouse
9. Saving for college
10. Cheap but antisocial hobbies

I’ve had three different bloggers write to me in the last week and ask how I come up with ideas for posts and keep track of them. I’ve mentioned this in the past, so I thought I’d share it again.

Whenever I have a post idea at any time, I write it down. If I can, I put it directly in Evernote, where I store my post ideas. If I can’t, I jot it down on a pocket notebook or a piece of paper and keep it with me until later.

I tend to brainstorm posts very well at specific times, particularly at the library and in the shower. My biggest challenge is remembering ideas when I have them in the shower, actually!

Anyway, in Evernote, I keep one note that’s just a giant long list of post ideas. I usually try to encapsulate what I want to write about in a single sentence and so that note is just a long, long list of sentences. I add fresh ideas to the top of the list.

Whenever I sit down to write, I go through that long list of sentences and pull out the ones that seem intriguing in some way and start drafting a post around it, using books and other research materials. Sometimes, this develops into a good post. Other times, it doesn’t.

If an idea obviously isn’t going to work well, I delete it. If I think it might work someday, I move it to the bottom of the list.

Q1: Investing small amounts
I have about $15,000 saved in a Capital One 360 savings account right now (a majority of it is from a recent wedding gift). I’m relatively young, have no debt, a sufficient emergency fund and am already putting away what I need for retirement. I don’t have any specific savings goals at this moment, but I’ve been planning on using these funds for the next large expenditure in my life, which could be 1) going to grad school; 2) buying a car (our extremely old car is on its last legs); 3) saving up for a down payment on a house, or something else I haven’t thought of yet.

Either way, I don’t plan on dipping into this fund for another 2 years, minimum, but I will probably be withdrawing from it within 5 years (and I will be continually adding around $500/month to it). In the meanwhile, I don’t like having it sit in a savings account earning the tiny bit of interest it is.

Would it be worth it to invest all the money in a moderately risky mutual fund? I’m okay accepting some risk, but not enough to spend it all on stock. I also understand I wouldn’t make a lot more money in just 2-5 years, but anything over the 0.75% interest it’s earning right now is good with me.

I’ve never invested outside of an IRA/401(k)-type setup and am very unfamiliar with whatever taxes and other fees I’d have to deal with if I did this. If those come close to negating anything I’d earn over a 2-5 years, I’d rather avoid it. Do you know of any viable options for someone in my position?
– Darren

For most investors, I view a stock mutual fund investment as being something you do over the very long term – more than ten years. A two to five year time horizon is a little bit short to be investing in the stock market. If you’re doing that, you’re not likely to get the type of long-term returns that the stock market gives you.

The problem is volatility. A stock investment in the short term – meaning anything shorter than ten years or so – might actually go down in value, or it might see a 12% annual return over that period. It’s impossible to know which it will be, since most of that volatility comes from broader economic changes.

The traditional advice for people in your situation is to buy bonds. To look at some, I’d play with this tool to find some appropriate bond index funds, starting off by checking the “bonds” box on the left and choosing only the “medium” length bond funds. Look at both the one year and five year returns to get a sense of the right one for you. Bonds are generally less volatile than stocks, but they do have a bit of volatility to them.

It’s really all about how much risk you’re willing to take on. Is some chance of losing some money worth the likelihood that you’ll get a better return than 0.75%? I can’t really answer that.

As for fees, I wouldn’t sweat that part unless you’re moving your money around a lot. If you buy one thing and sit on it, fees aren’t going to be an issue.

Q2: Overcoming jealousy
I’ll go along for months and months and do really well with my money. I’ll build up an emergency fund and take down part of my credit card bills and everything is great.

Then my sister comes to visit. She’s dressed in $500 clothes and just wants to shop all the time she’s here. She doesn’t seem to mind that I’m not buying anything when we go, but after a while of her buying $300 sweaters and the like, I start to get really jealous and by the last day I’m matching her purchase for purchase.

Again, she never says a thing. She never compares us or says anything insulting. She’ll pick up the tab for our lunches and if I even attempt to pay, she’ll just laugh and say her husband’s got this one. It’s really not her fault. It’s me. I don’t know what to do about it. It’s like I lose my mind when she’s here.
– Anna

That kind of situation can be frustrating, but it sounds like your sister is a good person who just likes to shop and currently has the means with which to do so. You clearly like her and want to be like her.

Step back for a minute and try to think about what your sister would do if the situations were reversed. Would she try to spend to keep up with you? Even more importantly, would you want her to even try?

Your sister is doing something that she seems to think you enjoy, probably based on the evidence of how you sometimes shop just as hard as she does. Next time she visits, why not suggest something else to do besides shopping? That might take the edge off of the spending binges.

Depending on your relationship with her, you can simply talk to her about it and explain how you don’t have the funds to shop as hard as she does. Your sister seems like a good person from this description. In all likelihood, she’ll understand.

Q3: Nutrition versus budgeting
I am a 24 year-old young professional, having obtained an undergraduate degree, and I am living in DC working an 8-5 job at a law firm. I have an average salary for my current age and experience level, and I enjoy the work I do. However, I have always considered myself both a workaholic and a fanatical saver. In high school, I worked and babysat. In college, I always had 2-3 jobs even when I played sports. Now I work at a bar on the weekends for extra cash.

I try to put aside $400-500/month after my IRA contribution. I just hit $25,000 in savings because I’ve had jobs since I was 14, and have always loathed spending it. I rarely spend money on new clothes (hate shopping), try not to acquire possessions that I will not use, and do not own a TV or car. For the most part, none of this bothers me.

When looking at my food budget, however, I am realizing that my desire to save money each month often means that I shortchange myself nutritionally. As a former college athlete and a self-professed gym addict, this is a stupid mistake but I can’t figure out a way to correct it. I have budgeted my money with mint.com for awhile now, but I am moving soon and will have access to more grocery stores with better (albeit more expensive) food. What is the average food budget for someone living in a city? Is there a certain formula or range for spending in my age/location? In every other aspect of life, minimalism and cutting corners has served me well and I see no drawbacks. This, however, may be taking a toll on my health & fitness level.
– Jim

You need to define what you consider to be an appropriate diet, then practice frugality within that diet. Maximize your “bang for the buck” in terms of what food you consider acceptable.

A lot of food shopping advice still applies. You can still make a grocery list to help limit impulse buys. You can still use grocery flyers. You can still comparison shop among various grocers.

Sure, your food bill might be higher because you’re eliminating some options, but the tactics still work just fine.

Q4: Percent into 401(k)?
How do you know what percent of your income to put into your 401(k)? I’m 26 years old and make about $30,000 a year.

– Erik

If you start saving from the day you walk onto the job, 10% to 12% is a good total target to shoot for provided you put that money in some kind of target retirement fund in your 401(k). I’d probably shoot for 12%, to be safe.

By “total target,” I mean that the 12% would include any matching provided by your employer. I don’t know what your employer provides with regards to matching, but you should be including that matching in your 12%.

If you go with that number starting right now, you should be in pretty good shape when you hit retirement age thanks to that wonderful power of compound interest.

Q5: Improving credit score
A divorce forced a short sale of the family home that finally became final 6 months ago. I know that has hurt my credit score and will for some time. (It is low 600) But I want to have everything else in great shape for when the short sale effect passes, so the score can improve quickly.

I have no car or other debt, and pay off my 3 credit cards completely every month. Should I get rid of one of the credit cards? I don’t really need that many. I never any when married but was advised, when divorce was inevitable, to get one asap while still married, which I did.

So my credit history is a 25 years of a few good mortgages and then one short sale, with only 2-3 years of consumer credit.

My oldest is a bank card at 23.2% interest. Then I got a store card at 23.99% . And the newest I got from my new bank for the benefits offered and the 20.99% interest. The total credit is small, only $12,000. Cancelling the store card will remove $4,700 credit. Is that enough to make any difference? I’m also saving to buy a car in 2 years and wonder if I’d be wise to get the loan, but pay it all off first thing with the car savings fund.

What other things can I implement and do to have this score up in 4 years?
– Max

Assuming you have no balance on these cards, I don’t think cancelling them will make much of a difference at all when it comes to your credit score.

The best thing you can do is to regularly use at least one of them, then pay off the balance in full each month. That last part is key. Using the card demonstrates that you’re actively using credit, but the payment part demonstrates that you’re using it responsibly, which is the key to raising your score.

As for the car loan and the quick payoff, it will likely help a little bit, but you must make sure there are no penalties for prepayment with the loan that you get.

Q6: Best self-improvement books?
What are the best self-improvement books you’ve ever read?

– Andrew

I’ve read a lot of good ones. Three in particular stick out to me: Your Money or Your Life for a whole-life perspective on money, Getting Things Done for figuring out how to manage my endless list of things I need to do, and The Read-Aloud Handbook for shaping my parenting more than any other.

Those three books changed my way of living more than any other. I could write about how great each of them are for many, many pages (and I have, in the past).

I very much enjoy reading self-improvement books. The good ones always make me genuinely reflect on my own life and usually make me change a thing or two about what I’m doing.

Q7: Charging boyfriend rent
I own my own place and my boyfriend is planning to move in with me. I’m trying to figure out what is fair to charge him in ‘rent’.

We are not engaged yet, but we likely will be getting married in the next year or so, so our finances will be merged eventually.

My house bills (mortgage, strata fees, property tax, hydro & Internet) work out to be about $2200/month. In the past, roommates have paid me $790 for rent (including hydro & Internet) – This is about the going rate for the area. My boyfriend currently rents from a friend for $400, including everything. By moving in with me, he’ll save about $150-200 in commuting/gas costs as well (he lives in the suburbs now.) We’ll also likely be saving a bit on shared food.

He has suggested splitting everything 50/50, but that would be quite a jump financially for him for housing at least (I have a higher salary than him), and I’m unsure of what the consequences would be, should we break up. (Eg legally? We live in BC Canada where common law rules apply after 2 years living together). His name won’t go on the mortgage until we purchase our next home together, in a few years.

I am quite frugal/cautious with my money, while he is doing ok (no debt and some savings) but tends to be more free flowing with his money. (He won’t let me pay for anything when we’re together (despite my protests) & will treat the larger group when we’re out). Given this, I’m thinking I should charge him slightly less than usual ($650-700?) And let him continue to ‘treat’ me a bit or have him pitch in more for groceries. I track everything I spend and hope to include his spending too, eventually… I would likely just try to keep things roughly equal until we’re actually married.
– Janice

If you are not married, treat him legally like a roommate. What are the rules for roommates on leases where you’re renting? What happens if there’s a breakup? What happens if one of you can’t pay the rent?

I can’t tell you how much to “charge” him for rent, but from what you’ve described, a 50/50 split is completely reasonable. As I said earlier, you should consider him a typical roommate for now – would you charge a random roommate less than 50% of everything?

Once you’re married, this is all moot because you’ll essentially be one financial unit, but until then, treat him as an ordinary roommate in terms of your money.

Q8: Lying spouse
My husband repeatedly lies to me about his spending. I’ll ask him how much he spent on after-work drinks and happy hour snacks with coworkers and he’ll tell me like $20 but when I add it up it’s closer to $100. He does this with all kinds of things and I’m having a hard time trusting anything he says.

– Glenda

I’m not defending your husband here, but you may be overinflating the problem a bit. He might not necessarily remember how much he spends when he goes out with drinks for coworkers. I know that when I used to go out with them, I’d often walk out feeling like I just spent $5 or $10 when I’d actually spent more like $30 thanks to snacks and an extra drink and maybe a game of pool or something.

Sit down together and work through where all of your money is going. Look at how he spends, but also look at how you spend. You’re in a marriage – all of this should be open.

If that kind of openness presents problems, then there are genuine marriage troubles. I don’t think there are necessarily troubles yet and you may be jumping the gun into a “he’s a liar” perspective.

Q9: Saving for college
My question is, now that we are almost debt-free, I badly want to start saving for my daughter’s (and now, son’s) college. I do NOT want them saddled with debt after college. Should I join the Scholar Share 529 plan in California? My concern is that 1) it doesn’t offer tax deductions; and 2) I have some concerns that they will somehow mismanage it or somehow ‘change the rules’ so that it doesn’t really end up paying for college. Any advice would be terrific.

– Carla

If you believe a 529 may just “change their rules,” you should have similar concerns about your retirement accounts and, frankly, any account where you store your money. I wouldn’t worry about those kinds of rules changes.

As for whether your state 529 is a good one, if your state plan doesn’t provide you with any tax benefits, I’d look at the plans offered by other states. You can enroll in any of them. Here’s a list of five top state plans.

I’m pretty happy with the one here in Iowa, but there are state tax benefits for using it.

Q10: Cheap but antisocial hobbies
Our family has cheap hobbies – mostly reading – but they seem to be fairly antisocial ones. My oldest son reads and plays a free computer game. My daughter plays her guitar and saxophone almost all the time, so there’s no cost there. My husband spends most of his free time in the garage fixing computers and building them out of discarded parts to sell for a little bit of cash. I like reading and spending time in the garden. None of us spend money on our hobbies, but we can spend whole days at home where no one talks. Do you have any ideas for good frugal things we can all do together that will get us talking?

– Audrey

It may sound corny, but a “family game night” might make a lot of sense.

You can get a lot of great board games for a pretty low price (and, no, I don’t consider Monopoly to be a great board game). For example, Forbidden Island is an excellent game that’s under $20, is easy to learn, is cooperative (meaning it works well in family situations), and has a ton of replayability. You can also check out the offerings at your local thrift store. (I should make a list of great “bang for the buck” board games…)

Another idea is to have a “volunteer night” in which you, as a family, work for some volunteer program one night a week, like a local soup kitchen or food pantry.

Both of those ideas are pretty inexpensive and can get you all doing something together.

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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