Questions About 401(k) Matching, Book Recommendations, Educational Savings, Trade Schools, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Saving to switch careers
2. New personal finance book recommendations
3. Match or no match?
4. Using Roth IRA for education
5. Less frequent 401(k) matching
6. Sensible gift for groomsmen
7. Giving up stuff you love
8. Trade school advice?
9. 7% average annual return?
10. Bouncing around streaming services
11. Take anything to Goodwill
12. Good audiobooks for road trip

When I was young, I used to always look forward to birthdays with great anticipation. A birthday usually meant presents and cake and ice cream and family and friends.

When birthdays pass for me as an adult, I would actually prefer that they were invisible. I don’t want to celebrate them because it’s honestly just another day in my life.

The difference is that, when I was young, there was a reason to want to grow older. It meant new opportunities and new experiences and new freedoms. Now? I have all of the opportunities and freedoms I want. There’s nothing really to be gained by the passage of years.

I’d far rather put a little extra effort into celebrating a child’s birthday (and by effort, I don’t mean throwing money at it, but actually putting footwork into doing something memorable for them) than celebrating my own in any way.

On with the questions.

Q1: Saving to switch careers

I am 31 years old, male, single, a lawyer who hates his career. I am in a huge law firm where I make good money but am basically anonymous and handle cases for clients that I hate and legally protecting them against people I have sympathy with. I wake up each morning dreading going to work. So I decided to switch careers. I am going back to school with the goal of teaching high school math.

Let’s assume that I could probably force myself to keep working here for another year before quitting. What’s the best strategy financially for transitioning back to school from this job? And eventually onward to teaching?
– Will

It’s good that you discovered that you hate your career when you’re still young and single, so that you’re not stuck in a situation where you can’t really change careers because of the responsibilities and other burdens on your shoulders.

If I were in your shoes, I’d obviously target going back to school starting in fall 2019. What do you need to do between now and then? You need to figure out what training you need to become a certified math teacher in the state you want to teach, figure out an educational path to get there in an efficient manner, and apply to the necessary schools.

From a more financial angle, you should aim to live as inexpensively as possible for the next twelve months. Going back to school is going to be expensive, so you’ll need all of the money you set aside, plus your life as a teacher is going to involve a lower salary than your life as a lawyer. Live cheap and build up a healthy amount of money in your savings account. However, if you have a 401(k), especially if it has an employer match, I would not cut back on your contributions. You’ll be extremely glad to have them in 30 years.

If you have any outstanding student loans, you should make sure that they will go into deferment while you go back to school. This will help you make ends meet while you’re studying. You’ll also want to make sure that you can take on the additional debt that will likely spring up from this trip back to school.

As for a school to target, aim for a state university in the state you currently reside. Figure out which one will require the minimum amount of coursework on top of what you’ve already taken to obtain a teaching certification in mathematics and aim for that.

In other words, start living cheap and start doing your homework. There’s really not much else to it.

Q2: New personal finance book recommendations

I’ve been enjoying the series on Wisdom of Frugality. You used to do a lot of book reviews. Do you still read personal finance books? Any newer ones that you recommend?
– Alexis

I do read recent personal finance books. A normal part of my writing routine is to go to the library, scavenge the personal finance book section (and a few other related areas), and do some reading with a notebook open in front of me, scrounging for fresh ideas or angles for me to consider for my own life and, eventually, for The Simple Dollar.

The thing with personal finance books is that most of them tend to go over the same core ideas. A personal finance book written in the 1970s and one written today is going to usually have the same core message: spend less than you earn and do something smart with the difference. Some specifics might change, but the core message is eternal. Thus, it can seem kind of repetitive to discuss the latest book that’s more or less the same as earlier books. In my eyes, Your Money or Your Life is still the best all-around personal finance book and The Total Money Makeover is still the best debt reduction book, and both regularly come out with revisions to make sure the little details are fresh.

I will make space on here to review truly interesting new personal finance books that I discover that say something that’s distinct and different enough from the usual message to be worth discussing. The Wisdom of Frugality is a good example of that.

Q3: Match or no match?

I know you always recommend beginning your retirement savings by investing in any company program up to the company match before starting to invest in a Roth IRA. However, what if you don’t know what the company will match? I’m about to begin a job with a new company and their 401(k) documentation specifically says “According to the [COMPANY] Savings Plan, [COMPANY] may, in its absolute discretion, make a matching contribution at Plan Year-End… Employees who are on the payroll on the last day of the fiscal year and who contributed to the savings plan during the year will receive a matching contribution if one is granted.” How would you go about investing here? Should I just pick a percentage and hope? Thanks in advance for your help!
– Tim

If I were in your situation, I would start out at work by asking your new coworkers whether or not the company typically does a match at the end of the year. Is this something they’ve actually done on a consistent basis? Or is it kind of an empty promise that they’ve rarely if ever fulfilled?

If it’s a pretty consistently fulfilled promise, then I would sign up for the 401(k). If there’s a good indication that they don’t actually do this at the end of the year with any consistency, then I would go with a Roth IRA.

Honestly, it sounds to me like it’s a company that’s hedging its bets. If they need to make their target numbers at the end of the year, this bonus is probably something that’s on the table as something they can cut. It does muddy the water for employees, though.

Q4: Using Roth IRA for education

My wife and I are expecting our first child in November. I am considering options for saving for his education. Is it better for us to start a 529 plan in my name and transfer it to him at birth or start a Roth IRA for me and use the contributions when he reaches college age and keep the gains for my own retirement? I’ve been reading about both options and want your take.
– Doug

My general belief is that parents should have their own retirement savings well in hand before they consider helping their children with college. If you don’t do that, then you run the risk of finding yourself at retirement age with inadequate savings and inadvertently becoming a burden to your children at the very point when they’re trying to find their way in the world. In other words, you should be putting away (at least) 10% for your own retirement before saving for your child at all.

Let’s assume, however, that you’re already doing that through your 401(k) and now you’re considering whether to contribute to your own Roth IRA or to your child’s 529.

Your choice boils down to this: would you rather have the proceeds of your savings be used to supplement your retirement savings or be used to supplement your child’s educational spending?

To put it another way, let’s imagine your future thirty years down the road or so. Are you better off with a little extra in your retirement funds while your child has a little bit higher student loan payments, or vice versa?

It’s really hard to predict which is financially “better” because we have no idea what’s going to happen in the thirty years in the middle. However, my feeling is this: I’d probably lean toward the Roth, all things considered, because it is inevitable that you will eventually retire, while it is not inevitable that your child will go to college or need your savings if he does go.

Q5: Less frequent 401(k) matching

What do you think about the trend of employers moving 401k matching to once or twice a year? This was totally new to me but recently I’ve heard of it more and more.

It seems like a crummy way to essentially replace a bonus with a previous benefit. It also incentivizes people to stick around longer—good for the employer, I acknowledge, but again gaming what had previously been a straightforward and socially valuable benefit. This coupled with “take a gamble” health care plans that atill manage to cost an arm and a leg…it seems like “benefits” of “good” jobs sure are eroding.

I am a firm believer in financial responsibility and frugality, but it seems consummately unfair in a world with such vast and growing wealth inequality that the burden of retirement and health care is continually shifted to individuals.
– Annie

This follows up nicely on Tim’s question above.

I think this trend of shifting to annual 401(k) matching is a trend that many companies are following because it keeps money in their own coffers for longer. If you pay all of the benefits at the last possible moment, then you keep the money that pays for those benefits in the company for longer, which is generally a good thing for the company. They can invest that money in the business for that time period and hopefully earn a positive return on that money for the company rather than a positive return for the individual employee in their 401(k).

Is it a move that’s friendly to workers? Not at all, obviously. Workers benefit by having their 401(k) matching deposited as early as possible, because it gives more time for compound interest and dividends to work in their favor. Switching to paying 401(k) matching from each paycheck to a 401(k) “bonus” at the end of the year means that the employee misses out on a lot of compound interest throughout the year. That can end up having a real impact – tens of thousands of dollars over the course of a career.

Unfortunately, unless the exact timing of 401(k) contributions is mandated in the employee contract, there’s not much that employees under contract can really do about it.

With regards to your final statement, I think that the things that happen to a person and their loved ones (and, depending on their degree of empathy, others beyond that circle) shapes a person’s political outlook. There is an truly healthy political and economic debate to be had over these kinds of issues… but The Simple Dollar is not the forum for that. Our interest is in helping people with the situation we have now.

Q6: Sensible gift for groomsmen

I am getting married in October. I have settled on spending $200 each on a memorable gift for my three groomsmen. I am looking for some ideas for something that they’ll value and use for a long time. Most of the groomsmen gift suggestions I’ve seen are impractical crap. Suggestions?
– Patrick

My honest suggestion would be to consider what you have in common with each individual groomsman and pick out a truly practical gift that expresses that commonality. This requires some homework and thought, of course, because you’re not just going to go to Amazon and “add three to cart” on some idea.

Sit down and, for each person, ask yourself what interests you share with that groomsmen and what key life experiences you’ve shared with that groomsmen. Then, when you look at that list, ask yourself what practical item touches well on at least one of those things.

There is nothing that beats a gift that speaks to who that individual actually is and what their connection is to you.

While I didn’t have a $200 budget, I did buy each of the people in my wedding party a gift that I thought matched what we have in common.

Q7: Giving up stuff you love

The biggest struggle I’m having in all of this is giving up things I love. I love going to cocktail bars. I love going out to eat at good restaurants. Giving all of that up just for the sake of “financial stability” seems like a terrible exchange.
– Max

Then don’t give up those things.

Instead, spread them out more. Wait until you’ve built up a big head of anticipation before you go to the cocktail bar or to that good restaurant. Savor that anticipation a little. Think about what you’re going to order when you go. Visualize it a few times.

Then, when you go, enjoy yourself thoroughly.

After you go, think back on the enjoyment you got from that experience. Was it really enjoyable? What will you do the same next time? What will you do differently?

Then let that all percolate for a while and let the anticipation build for a while for your next meal at a restaurant or your next cocktail bar visit.

What you want to avoid is making those things routine, so that you don’t appreciate them any more or have only a minimal appreciation.

Q8: Trade school advice?

My oldest son is 17 and has decided after his senior year to go to community college to become a carpenter. It’s a career path that the father of one of his close friends has followed and he has gone to a bunch of job sites and worked on Habitat for Humanity houses.

We have a small amount saved for him in a 529 which should apply to community college. There is a local community college that offers a carpentry program and his friend’s father says that he will help him find work. I don’t think he will have any debt.

What financial advice do you have for him?
– Craig

My number one piece of advice is to save for retirement starting on day one. It’s very likely that in this career path he’ll be responsible for his own retirement savings, so he should take that seriously from day one and open a Roth IRA as soon as he starts his first real job and set up automatic contributions to that Roth IRA. If he starts one at age 20 and contributes up to the limit until he retires, he’ll be able to retire in his mid fifties or so with plenty of money set aside.

This is particularly important in the trades, as a person in their late fifties and sixties may begin to have trouble actually performing the tasks required in that trade, and having a comfortable retirement cushion enables a tradesperson to retire without concern.

I personally feel as though trade work is a fine choice for any young person who is genuinely interested in that trade. People will be needed for trade work for the foreseeable future and construction does not appear to be slowing down in the least.

Q9: 7% average annual return?

When you talk about the stock market returning 7% on average, do you mean after inflation? Because it sure seems like it returns more than 7%.
– Jim

It’s after inflation. I got that number from Warren Buffett:

The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.

In essence, Buffett believes that stock market growth that’s substantially higher than GDP plus inflation plus dividends is not something that can be expected over the long term any more. With GDP around 3%, inflation around 2%, and dividends around 2%, you wind up with a 7% average annual return.

The stock market has been on a long bull run as of late, one that will eventually correct itself, so I would not judge long term stock market numbers on just data from the 2010s so far.

It is also worth noting that predicting long term stock market returns is a fool’s game, because no one can accurately predict the future. I use the 7% number because it’s a reasonable one.

Q10: Bouncing around streaming services

My husband and I “bounce around” streaming video services. At the end of each month, we’ll deactivate our account on one service and then on the first of the month we’ll activate it on another service. So one month we might have Netflix and another month we might have Hulu Plus and another we might have HBO Now. It takes just a couple of minutes to do it. Then we have fresh stuff to watch because we can catch up on all of the new stuff added in the 3-4 months since we last watched it.
– Maggie

This is a pretty good strategy, especially if you watch a lot of streaming video (ideally, you’ve ditched cable and replaced it with streaming) and you’re attentive to subscribing and unsubscribing to services. This is something I would schedule a calendar alert for.

If you subscribe to Amazon Prime Video (about $10 a month), Netflix (about $10 a month), Hulu Plus (about $10 a month), and HBO Now (about $15 a month), costs start to add up. That’s $45 a month, right there. If you instead rotate through the services (buy Prime for a year, then let it lapse for a few months while you catch up on other services), you’ll save about $35 a month as compared to having all of those services.

We usually pair Amazon Prime Video with one other service that we rotate every once in a while when we’re not finding anything new to watch that interests us. It’s a good money saving strategy.

Q11: Take anything to Goodwill

Trent, I read your article about the boxes you store in the garage for a period of time and then take to Goodwill if you haven’t used anything from the box. I went on a “Trash Tour” in the 90’s, put on by our Solid Waste Authority. At that time, the largest exporter, by weight, in our county was a recyling company that bundled clothing and other fibers to send overseas to fiber poor countries. The old clothing was used to make such things as shingles. Fast forward to 2016, I was at a conference on sustainability and one of the speakers was from Goodwill. She said that they would like all of our used clothing, bedding etc, no matter the condition. They sell what they can in their stores and then sell the rest to businesses that use the fiber. Some is sent overseas as described above. So don’t be picky about what you donate to Goodwill. They have uses for your old clothing you might otherwise throw out. The fiber is put to good use and saves space in our landfills.
– Brenda

My philosophy is that, if I want to get rid of something and I don’t intend to bother trying to sell it, I first check and see if Goodwill wants it. They’ll take a lot of things, and this is the reason why. Someone somewhere probably wants that stuff.

To me, the fact that I can take something that I was on the verge of tossing and give it to someone who will eventually put it in the hands of someone who will use it is far better than just tossing it. I would far rather give an item to someone who would get some value out of it than throw it away where it would just fill up a landfill somewhere.

That’s why anything that isn’t pure rubbish around here usually winds up in a Goodwill box or bag if we want to get rid of it.

Q12: Good audiobooks for road trip

I am looking for some good self improvement audiobooks to listen to on a long upcoming road trip. My library has a huge selection. I am mostly looking for ones that will help me build discipline to stick with things in my life.
– Andrew

Here are two books on that topic that I’ve enjoyed in the last couple of years. I can’t judge the audiobook quality here, but I can say the books were good.

Willpower by Roy Baumeister centers around the argument that we each have a certain amount of willpower during a given day and that it depletes throughout the day. He offers a bunch of solutions for nudging our capacity for daily willpower upwards a little, as well as suggestions for how to “refill” our willpower effectively.

Triggers by Marshall Goldsmith is a book I’ve been high on for a while and mentioned offhand more than a few times on The Simple Dollar – perhaps I should do a series on it. The book’s focus is on orienting your life so that you naturally have triggers that exist that nudge you into better behavior, and he offers a few really great techniques for doing this.

Both of these hit the very points that I think you’re looking for, and I think you’ll enjoy both of them.

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.