Questions About 0% Loans, Home Brewing, Insecurity, Everyday Carry, and More!

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. 0% loan? Why not?
2. Wedding registry ideas
3. When to retire?
4. Using 401(k) for loan repayment
5. Everyday carry?
6. Reusable freezer containers
7. Insecurity theory
8. College student using food pantry?
9. How is home brewing cheap?
10. Trust fund “allowance”
11. Leave online orders unpurchased
12. Safety razors

One of the hardest parts of being a friend is watching that friend going through a painful journey and knowing that you can’t really help them through it. Instead, you can just be there waiting for them on the other side.

I’ve been on both sides of that picture myself. I’ve had friends who wanted to help me during times of trouble and simply could not. The best friends were the ones who were still there when I picked up the phone a month or two later.

At the same time, I’ve watched friends go through really painful experiences where they seemed to shove me away. Sometimes, they never came back; sometimes, they did.

You can offer help, but sometimes it’s not what they need. Sometimes friends just have to figure out their own path and the best thing you can do is be waiting there for them when they need you.

Q1: 0% loan? Why not?

For the last month some local banks and credit unions have been running ads for 0% personal loans in the newspaper and mail flyers and signs around town. I am trying to figure out what the “catch” is for these loans. They usually have pictures of a cruise ship on them and talk about having that great vacation now. What is the catch??
– Bonnie

There are a lot of catches, depending on the exact specifications of the loan.

Most of the time, the “catch” is that the 0% interest rate is a teaser rate. It lasts for, say, the first three months or the first six months of the year. After that, the interest rate jumps – and it often jumps up pretty high.

So, let’s say you borrow $2,400 and they put you on $20 minimum payments. For the first three months, there’s no interest – you pay that $50 minimum and the balance goes down to $2,340. At that point, the interest rate goes up to 10% per year.

From that point forward, it will take you 445 months to pay off the loan. In total, you’ll pay $6,550 in interest alone along with the remaining $2,340 in principal. You’ll end up paying over $9,000 to borrow that $2,400.

Now, most arrangements won’t be quite that stark and unfair, but that gives you an idea of how they’ll work. The interest is free for the first few months, but it goes up after that.

Q2: Wedding registry ideas

My husband-to-be and I are getting married in November and we are in the process of setting up our wedding registry. Right now we live in a small apartment and most of our stuff is pure Goodwill. Do you have any suggestions for good items to put on our registry? We are registering at Target definitely and maybe at a few other places.
– Danielle

I would fill up the list with “buy it for life” items that replace things in your home that you actually use a lot. For example, I’d suggest putting a chef’s knife, a paring knife, a bamboo cutting board (or two – one for meat and one for non-meat), a stainless steel ladle, a cast iron skillet, and an enameled cast iron pot on there for starters. And that’s just your kitchen.

The goal is to receive things for gifts that you’ll actually use and that you’ll likely never have to replace, at least not for many years.

Unless you really can’t come up with anything else, I strongly encourage you to just add quality versions of items you already use a lot in a cheap form rather than adding items that you’ve never used before. Even if it’s something simple like replacing a beat-up plastic spatula with a new silicone spatula, it’s a much better move than putting something like a peach de-fuzzer on there.

Q3: When to retire?

How do you decide when it is the right time to retire?

I am currently 61 years old. I have been contributing 10% of my salary to a 401(k) for the last 23 years and for most of that time my employer has been contributing 5% too. The total balance right now is $1.3 million and most of it is in a target retirement 2020 fund.

I will be eligible for Social Security in a year, but if I hold off the benefits will be larger.

Right now my living expenses are about $3,000 a month between my wife and myself. We live in a nice neighborhood with a homeowners association and pretty heavy property taxes and insurance. We have thought about moving to an apartment and buying a RV and living mostly out of the RV in the future.

Is it okay for me to retire?
– David

If I were in your shoes, I’d retire as soon as I had a plan in place to fill my time in retirement. In other words, I wouldn’t just go in there and sign my papers unless I knew how I was going to fill every day with something worthwhile.

If you have $1.3 million in your 401(k) and adopt a relatively safe 4% annual withdrawal rate, you’ll be pulling out $52,000 per year. You’ll have to pay income taxes on that, but you’ll still be taking home somewhere around $40,000 per year.

If your living expenses are $3,000 a month, that adds up to $36,000 a year. Thus, right now, your 401(k) alone should sustain you for the rest of your life.

Of course, you’ll soon gain Social Security. When that kicks in, you can reduce your 401(k) withdrawals appropriately.

Unless you hit a ton of unexpected expenses – and I mean an avalanche – or your lifestyle rapidly inflates, you’re going to be fine in retirement from what I can tell.

Q4: Using 401(k) for loan repayment

I have about $47K in total debts, of which $12K is credit cards. I have $22K in my 401(k) from my old job and I am thinking about emptying it out to pay off debts. From what I understand I have to pay 10% of the balance to the IRS so that would leave me with just under $20K to pay off the credit cards and most of one student loan. Is this a good idea?
– Mary

It’s a very bad idea, because you’re forgetting something with that 401(k) withdrawal: it’s also going to be taxed as regular income.

That 10% you mention is just an additional penalty for early withdrawal. You will also have to pay income taxes on that money that you pull out, which can be anywhere from 15% to 40% – and that’s just federal income taxes (depending on your other income). If you have state income taxes, it’s going to be even more.

Since I don’t know what your income is actually like, I’ll just assume you’re paying a 25% income tax rate. That means that you’ll have something like $15K for your debt repayment, not $20K. That’s a big difference.

Unless that debt is absolutely killing you, you shouldn’t tap your 401(k) to pay down debts.

Now, some 401(k) plans do allow you to borrow money against the balance. If that’s the case, you should compare the terms of that loan versus the ones you’re wanting to repay and if you get better terms, go for it.

I would just avoid purely tapping money from your 401(k).

Q5: Everyday carry?

I have started reading and enjoying recently. I also read The Simple Dollar. Can’t help but wonder what your “everyday carry” is like.
– Andrew

I’ve answered this question in the past, but I figure I’ll answer it again.

On my body, at any given time, I have a wallet, a pocket notebook (usually a Field Notes pocket notebook), a pen (almost always a Uniball Signo 207 black ultra micro), a Spyderco Tenacious pocket knife, my keys, and my phone.

In my “go bag” that I take with me for almost every excursion outside of the house, I have a lot of things. In there, you’ll find:
– My laptop
– My laptop charger
– My Kindle Paperwhite
– A spare charger for my cell phone
– A Leatherman Juice S2
– Several spare pens and a spare pocket notebook
– A Streamlight ProTAC mini-flashlight
– A notebook dedicated to whatever online class I’m taking at the moment
– A backup bottle of my prescription medicine
– A water bottle
– Some sore throat lozenges, usually Fisherman’s Friend
– A tiny toiletry bag with a toothbrush, a mini-tube of toothpaste, a mini-bottle of mouthwash, a razor, a mini-container of shaving cream, and a deodorant stick
– A few granola bars
– A backup t-shirt for myself with a backup t-shirt that would fit my older kids and another one for my youngest child wrapped up in it
– A copy of whatever book I’m currently reading if it’s not on the Kindle

That’s what you’ll typically find in my everyday carry bag. It does change somewhat when I am going on a specific trip, though, as I repack everything.

Q6: Reusable freezer containers

Do you have any recommendations for reusable freezer containers for storing individual meals and maybe small casseroles? I can’t really find anything at the store for freezer storage other than quart and gallon Ziploc freezer bags which would just make a giant mess.
– Danny

Honestly, we use containers from Ziploc. They work really well over a lot of uses – at least a dozen and they’re still ticking. We bought a bunch when they were on sale at a local store.

To label them, we just use ordinary masking tape and a marker. We mark them with the contents, the date we packed it, and usually a “use by:” date, too.

I have seen more reliable freezer containers that will theoretically work for hundreds of uses, but we haven’t even worn out one of these Ziploc containers yet, so those may not even be worth it. These seem to do the job really well.

Q7: Insecurity theory

I really enjoyed your “Road to Financial Armageddon” post series, especially the

part about the “Yuppie years.” Let’s just say it sounds familiar.

One big aspect of that kind of lifestyle especially for young professionals is that there’s some real insecurity tied into it. Often young professionals are insecure in their career path so they try really hard to “fake it until they make it.” They try hard to act like they are a big success because they don’t have the confidence yet to not worry about it.

I am middle age now and I see it at work. The newer employees are always dressed up and have the latest smartphone and are driving nice cars. The middle-aged guys like myself are usually driving way cheaper cars and have older phones and replace clothes only when they’re old.

I have confidence in my skills so I don’t need to “act” successful any more. I am successful.

I think that “Yuppie years” phase you talk about is part of a natural evolution of a professional.
– Bob

I absolutely agree with you that there was a lot of insecurity tied up in that lifestyle, at least for me. I felt very insecure in the professional world I found myself in. People were asking some pretty complex and difficult things of me and basically just expecting me to achieve them. Often, I wouldn’t have any idea how to actually pull those things off.

The easiest way to handle insecurity is through bravado and through “faking it until you make it,” and I think that’s much of what was going on during that time. I didn’t feel secure in the professional area that I was in during those first few years in my career, so I would find other ways to give off the impression – and somewhat convince myself – that I belonged. Often, that involved spending money on things like golf clubs, smartphones, restaurant meals, and so on. It made me, in my eyes, look like a professional.

Here’s the thing, though. Most of the older professionals in my field didn’t act that way. They mostly drove older cars and didn’t really dress very nicely most of the time, unless there was a key meeting or something. They didn’t brag about their tech, either.

I would have been a lot better off looking at them as examples rather than trying to cover up my own insecurity with spending.

Q8: College student using food pantry?

I am a sophomore at a large state university in the Midwest. I live in off-campus housing with three other people and have a part-time job while also a full-time student. There are times when I can barely afford food.

The other night I suggested that I might look into going to a food pantry that’s in our town and my roommates basically laughed at the idea, but it doesn’t seem dumb to me. I basically work 20 hours a week for $8 an hour which would surely be enough to qualify me.

Thoughts? Is this a good idea?
– Erika

If you’re eligible for that food pantry, you should use it. The point of a food pantry is to put food on the plates of people who really can’t afford it and that seems to be the boat that you’re in.

Another useful strategy is to hang out on campus more. Many campus organizations have meetings where food is provided out of the funds they get from the university. In my experience and from the stories of other students, clubs related to academic majors are particularly good in this regard.

What about other benefits? You might be eligible for SNAP, which would provide you with some additional food. SNAP is generally not open to college students unless they work 20 hours a week or have dependent children, but you may qualify under that 20 hours a week standard.

Trust me, you can eat when you are in college. There are lots and lots of sources for free or very low-cost food.

Q9: How is home brewing cheap?

You’ve mentioned home brewing as a “cheap” hobby, but to me it seems anything but cheap. There is basically no way to make beer at home as cheap as buying Busch Light at the store. You’re probably making cheaper stuff than the cost of buying some of the top craft beers, but your quality is going to vary a lot. How can you possibly justify this as a frugal hobby?
– Kevin

You can turn water, a bit of malt, a bit of sugar, and a bit of yeast in a two liter pop bottle into beer. The core ingredients of beer really aren’t very expensive at all and you don’t need that much equipment, either. Here’s a recipe for doing just that – all you need are the two liter bottles, a big brew pot, and a lidded bucket for equipment, basically, and your only ingredients are water, a can of malt extract, a bit of sugar, and a yeast packet. You can make 20 liters of beer with about $5 in equipment and about $5 in ingredients. It’ll probably be a mediocre pilsner (think Old Milwaukee or something), but it’s beer.

Everything really scales up from that. Let’s say you wanted to use individual bottles – you’ll need a lot of empty beer bottles, a capper, and some blank caps. You might want to make an IPA, which will require some hops as an ingredient. Maybe you want to make your own malts, which will require raw grains and something to grind them and probably a mash tun (which can be a large insulated water cooler if you’re starting out).

I’ve received most of my “scaled up” items as gifts over the years. I have a large glass fermenter which was a gift, a copper coil for cooling the beer which was (mostly) a gift, a fermenting bucket which was a gift, a mash tun (an insulated water cooler) which was a gift with about $5 in additional modifications… you get the idea.

My only real expense has been in ingredients, and that can get expensive if you’re making really hoppy IPAs or unusually flavored beers. Still, it’s far cheaper per batch than buying a similar batch from the store.

Q10: Trust fund “allowance”

My wife’s grandparents were exceedingly wealthy and they set up a trust fund for each of their grandchildren. Upon turning 21 they receive a monthly stipend for the rest of their life that’s tied to the Consumer Price Index and currently it’s abut $5,300 per month.

This makes personal finance easier no doubt! Her parents were very down to earth and apparently her grandparents were too so we actually live below our means right now.

I am pretty sure there is more than enough in that trust fund to last her for the rest of her life. When she passes away, it is converted into a lump sum and split among her survivors.

My question is what you would do with this kind of income stream. Our instinct is to live off of the money from the trust fund and then use the other income we earn for special expenses like travel.
– Donald

I think your instinct is spot-on. If I were you, I’d live a lifestyle that was purely funded by the income from her trust fund. I’d then work, but choose jobs that fulfilled personal interests and passions, and use the income from those jobs to do special things.

You don’t really have the need to save for the future or save for retirement that other people have, which is a real blessing. However, you do run a real danger of escalating your lifestyle beyond that trust fund income.

Just avoid that and you’re fine. Don’t even look at other income streams. Just bank them and use them for special occasions. A normal month shouldn’t come close to exceeding your trust fund income.

Q11: Leave online orders unpurchased

This is a really slick money saving tip my sister showed me and it has worked for me a few times.

If you are going to buy something online, go through all of the steps of buying it but don’t hit the final “buy” button. Instead just let all of that stuff sit in your shopping cart for a few days.

At some online sites they will email you with discounts to get you to complete your order and sometimes the prices will be lower when you go back and check in a few days.

I saved about $200 buying a computer this way! Going to try it everywhere now!
– Maggie

This actually works well at a lot of online shops – but not all online shops. Your mileage will most definitely vary with this tactic, even on trips to the same online store.

I’ve seen it work at Amazon, where the price of an item that sat in my cart for several days magically dropped by 10%. I’ve seen it work at Shutterfly, too, and I’ve heard anecdotes about it working in lots of different places.

It works just like Maggie says. Just add an item to your shopping cart and sign into the site, but don’t buy it. Let it sit there. Check the price in a few days. It very well might have dropped.

Q12: Safety razors

Do you still use a safety razor for shaving?
– Dennis

I experimented with using a safety razor for about a year, but eventually I abandoned it because it just didn’t work well with my skin. I had no problem trimming with it, but I would inevitably either cut myself badly or really irritate my skin over the larger patches.

Instead, I moved back to using cartridge-based razors, but with a twist. Instead of just disposing of them, I actually hone them a bit on a piece of wet rubber after each shave. It’s easy. The item I use for this is called a RazorPit, and it works like a charm. I now get about eight months of use out of a single cartridge, which makes it more than cheap enough for me.

Safety razors are fine. They just never really agreed with my skin at all.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.