Questions About 401(k) Validity, Vacuum Cleaners, Exercise, Identity Theft, 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. 401(k) is a scam?
2. Obsession, then nothing
3. DON’T buy the cheapest?
4. Getting mortgage after identity theft
5. Fighting against promotion
6. Buying a good vacuum
7. Actual cost of morning coffee
8. Giving away books versus selling
9. Prioritizing 529 savings
10. Unhappy with much of life
11. Exercising in public
12. Life philosophies question

The feeling of getting lost in a “zone” state when you are doing something you really love is second to none. I was able to spend a few hours playing a board game with a couple of good friends over the weekend and got very much lost in the moment with them, and I realized when we were wrapping up that I just felt better – more relaxed and just better all around.

On with the questions.

Q1: 401(k) is a scam?

Been reading articles about how 401(k)s are bad lately. Like kiplinger.com… and jamesaltucher.com…. Why do you recommend these scams?
– Adam

A 401(k) isn’t a scam, no more than any investment is a scam. It’s simply an investment tool geared toward a specific goal that many people have. If you don’t have that goal, then it’s probably not a good choice.

That goal is simple: you want to have some money set aside for retirement when the expenses you have in retirement are likely to be lower than the expenses you have now. If that’s a major goal and your workplace offers a 401(k), then it’s probably a good choice. If that’s not a major goal for you, then a 401(k) is a bad choice. A 401(k) is just a type of account designed for that specific situation.

What if you want to save for retirement but you think your annual expenses in retirement will be higher than your expenses now? A Roth IRA is probably a better choice. What if you’d rather save for your kid’s college education? A 529 plan for your kid is probably a better choice. What if you’d rather save up to start a business in five years? A taxable investing account is probably a better choice. What if you just want some cash set aside for personal emergencies? A savings account is probably a better choice.

Q2: Obsession, then nothing

I have this weird cycle I go through with all kinds of things. I’ll decide something is interesting and obsess on it for a few months and usually end up making some expensive purchase and then use it for maybe a few hours then get burnt out on it and put it in the closet and move on to a new obsession. I’ve done it with notebooks and with yo-yos and with fountain pens and that is just this year. I feel like I am searching for the thing that will make me fulfilled and I just haven’t found it yet. Want to break out of this loop.
– Mark

Some people simply enjoy the “discovery” part of learning new things and get bored when it turns into the “mastery” part. Basically, when you’re learning something new, there’s a “discovery” part where you’re finding out new things about whatever it is you’re learning and then a “mastery” part where you’ve mostly seen the features and are now refining and mastering them. Some people really enjoy the “discovery” part of the equation and don’t enjoy the “mastery” part, and that sounds like you.

The problem is that you’re associating this passion for “discovery” with buying expensive stuff, and that’s a mistake. A much better approach would be to focus on doing above acquiring. Rather than buying an expensive version of an item, see if you can buy a low end one or a used one such that if you realize that it really is something you’re deeply passionate about over the long haul, you can upgrade with some real knowledge of what you’d want in a high end version. Better yet, borrow the item if you can.

Another great approach is to look at things like Meetup and the bulletin board at your library and the websites of local businesses associated with your new interest and go to social groups related to that interest. You’ll often get a lot of insight into starting out in that hobby without paying anything, which will often be enough to get you through the “discovery phase” without shelling out cash.

Q3: DON’T buy the cheapest?

I think your general advice to buy the cheapest is a bad idea. Whenever I buy the cheapest thing, it’s just junk. I bought a cheap TV last Black Friday and it came with just a 90 day warranty and it’s already dead. Don’t buy cheap unless you just want to throw your money away.
– Abbie

My buying advice wouldn’t have encouraged anyone to buy the cheapest TV on Black Friday. There are two situations where you should buy the cheapest item – when it’s a consumable item under $20 or so (like household supplies and condiments and such) and when it’s a type of item you’ve never used before and can’t really articulate what you need in terms of features and aren’t sure if you’re going to use it going forward. Usually, I encourage the purchase of a used item in this second situation.

There are some situations where I don’t encourage buying used – any furniture with padding or cloth, for example, is something I’d avoid, and I’d also avoid electronics – but those are exceptions where used items are particularly problematic.

A new television doesn’t fall into any of those classes (unless you’ve never owned a television before). If it’s not in either of those classes, you should be doing a ton of research before buying and purchasing a model that offers the features you actually need and the best bang for the buck for that model. I usually end up going with Consumer Reports Best Buy recommendations when making these kinds of purchases, like appliances, for example.

Q4: Getting mortgage after identity theft

About a year ago, my husband and I decided that we were going to move into a new home this fall shortly after the birth of our child. In the spring, when I was pregnant and we were house shopping, someone took out several credit cards in my husband’s name. We managed to get them all cancelled but his credit report looks like a mess. We held off on further home shopping because of it and because our baby arrived, but now we’re not sure what to do.
– Amy

I would go to a credit union that does manual underwriting on home mortgages and get pre-approved. Use the amount of your pre-approval for the basis for shopping around for a house.

Manual underwriting simply means that a mortgage officer at a bank or credit union sits down with you and actually figures out your credit history and loan worthiness manually rather than simply relying on a computer algorithm or a credit score to determine it. This allows the officer to figure out your actual story, something that a computer algorithm will often botch, and often results in loans being made to people with unusual histories like this one.

Sadly, this kind of story is becoming a lot less unusual, as identity theft and credit fraud become more and more common.

Q5: Fighting against promotion

My company has a culture of promoting from within and trying to keep people for many years to preserve knowledge and culture. I actually love the work I’m doing right now but there have already been discussions about promoting me to a position that I don’t want. I want to keep working on interesting problems rather than managing people and the next step for me is into a job where I’m running a small team and that is the last thing on earth I want. It’s to the point where I am considering switching out of this company which I otherwise love. Thoughts?
– Mark

This sounds like a small business that I’m familiar with where they have the young hands do the work and the old hands steer the ship. Everyone who’s around long enough eventually becomes a foreman or manager, mostly just keeping the ball rolling, putting out fires, and jumping into specific tasks as needed.

My suggestion is to sit down and explain exactly how you feel to the person above you in the management chain and perhaps also the person above that person, if applicable. State that you really love your current position and aren’t interested in managing teams right now, but that you will be very clear in the future if/when you’re ready to take that step.

I have been on both sides of that coin. I have been the “team member.” I’ve also been a team leader, both in a good way (where I was also able to do a lot of interesting work and mostly just put out occasional fires and ran meetings) and a bad way (where most of my time was people managing). I don’t mind the first, but I really didn’t enjoy the second, so I understand where you’re coming from.

Q6: Buying a good vacuum

I want a vacuum that won’t just break down and lose suction in a year and actually cleans carpets. Can’t afford one of those $500 vacuums. What do you suggest?
– Amber

Vacuum cleaner quality really depends on budget, and the things you want out of a vacuum basically don’t exist in low-end vacuums (the sub-$200 market). Inexpensive vacuums are usually mostly made of plastic, poorly constructed, and have seals that just fail surprisingly quickly, rendering it unable to even pick up dust off a hardwood floor.

Buying vacuums used is hit or miss. You’ll often find used ones are completely lacking suction as well, which on cheap vacuums renders them useless. Vacuums at estate sales are usually fine.

Probably the best option among cheap vacuums is the Bissell Zing, which is a lightweight canister vacuum that can be had for around $60. It’s not a killer vacuum by any means, but it’ll get the job done for a good while at a pretty reasonable price.

For those curious, if I were buying a higher end vacuum, it would almost definitely be a Miele canister of some type. We currently mostly use an inherited Kirby and occasionally a vacuum that the previous owner of our home left in the closet when they moved.

Q7: Actual cost of morning coffee

Can you help me figure out the cost of brewing an actual decent 16 ounce cup of coffee in the morning? Including things like the cost of the pot and electricity and such?
– Marit

The cost is incredibly variable, to tell the truth. The best I can do is walk you through what I do for my own coffee.

I personally use a cold brew coffee maker very similar to this one that I bought for $10 at a sale. The actual coffee that I use varies a lot. I can get decent ground coffee for about $0.50 per ounce. I use roughly half a cup of ground coffee (about 3 ounces) per 32 ounces of water, so I just measure out half a cup of ground, put it in the cold brew maker, add 32 ounces of water, and leave it overnight in the fridge. The fridge would run anyway so the cost of energy is negligible, so the cost is about $1.50 for the coffee, a fraction of a cent for the water (which comes from the tap), a prorated cent or two for the cost of the coffee maker, and then a few cents to run the microwave if I want to heat it up. For a 16 ounce cup, you divide that in half, getting you in the ballpark of $0.80.

If you use a drip coffee maker, the cost will go up somewhat. The initial coffee maker has a much higher cost and it uses paper filters and it uses a small amount of energy. My estimate from my wife’s coffee making process is that she can produce a 16 ounce cup of black coffee for just a hair under $1.

In terms of quality, I’d put the stuff I make on park with the coffee I’ve tried at most chain coffee shops. There are some individual locations that can consistently make a better cup with expensive equipment and freshly roasted beans, but it’s like a 10%-20% increase in quality for a 10x increase in price, to my palate.

Q8: Giving away versus selling

I have a large book collection that I have gone through and realized that I want to keep about 10% of them and get rid of the other 90%. I have looked into selling a few but it seems like a ton of work to get pennies per book. What is a low effort way to sell a lot of books even getting just a quarter per book or something like that? If not, what is the best way to donate them?
– Sam

If you want to sell a bunch of books, the next time there’s a community yard sale, just announce you’re having a book sale and price everything at $0.50 a book for the first few hours of the sale and then $0.25 a book for the next few hours and then $0.10 a book after that. All you have to do then is put all of your books out on tables in your driveway and collect the money. You might have to borrow a few folding tables from people.

If you want to donate them, consider your local library. They might put some on the shelves for others to read, and the ones that they don’t can be used in library sales, where the proceeds will help keep the library going. I almost always encourage people to donate books to libraries.

You can also donate books to your local Goodwill or Salvation Army.

Q9: Prioritizing 529 savings

How high should I be prioritizing 529 savings for my daughter? She’s 3. I started a 529 for her when she was 6 months but lately I have read that I should be prioritizing my own retirement over her 529. I currently save 6% in 401(k) with 3% company match. Thoughts?
– Nate

It’s hard to know for sure what you should be doing without knowing your age and how much you’ve already saved for retirement. For example, if you’re 26 and already have most of a year’s salary in retirement, you’re probably find leaving things as they are. If you’re 38 and just started saving for retirement, you probably want to dial down the 529 and dial up the 401(k).

As a rough estimate, if you’re 30 or under and have a year’s worth of salary in your 401(k), leave things as they are. If you’re in your lower 30s and have at least two years’ worth of salary in your 401(k), leave things as they are. If you’re below those levels, dial down the 529 and dial up the 401(k).

That’s just a rough estimate, of course, but it gives you something to work with. If you don’t have adequate retirement savings, you don’t have a ton of time and energy left to pick up the slack when you’re of retirement age; meanwhile, your daughter can always make up ground for some student loans when she’s in her twenties. Make sure you have your own retirement covered, then give her a helping hand.

Q10: Unhappy with much of life

What do you do if you look around at the various areas of your life and you’re unhappy with most of them? When I look at my health and my finances and my relationships and my career and everything else, I’m just not happy with most of it.
– Nina

Start with the internal. That’s the easiest answer I can give. Start with your body – physical health – and mind – mental health.

Focus, above all else, on improving your food and beverage intake, getting some daily exercise, getting adequate sleep, and adopting some contemplative strategies. Start small, with something like “eating vegan before dinner” or “giving up soda” or “walking around the block during lunch and when I get home” or “going to bed an hour earlier or an hour later” or “writing in a journal for 15 minutes each morning.” If you are facing deeper physical or mental health issues, consult a doctor and follow their advice.

When you feel better, both mentally and physically, you feel much more capable of dealing with the other things you want to change. Always start with the internal – your body and your mind.

This next question covers some of the same ground, I think.

Q11: Exercising in public

Trying to follow your advice about walking more but whenever I go on a long walk I get sweaty and my face turns red and I just think I look horrible and want to go home. Don’t have any real space to work out at home either and can’t afford a gym.
– Aerie

Right away, I will point out to you that if anyone sees someone outside who’s moving around, sweaty, and red-faced, 99.9% of people are going to think, “Good for that person, getting in shape.” I think that exact thought whenever I see someone doing any kind of exercise outside, whether they’re walking or running or biking or sweaty or not yet sweaty or red faced or not red faced or whatever. Good for them.

No one looks fabulous when they’re actually exercising. Sure, you might find Instagram pics of people looking great in fitness clothes or something, but that’s usually pre-exercise or else a completely staged picture. Exercise means you’re going to look sweaty and out of breath and red faced and that’s okay. In fact, a lot of people will admire it and say “Good on you!” Don’t be embarrassed of how you look when exercising – be proud, because it’s an extremely clear indication that you’re putting in the work.

(It’s worth noting that this same exact thing applies to the gym or to hiking or anything like that.)

Get out there and walk around. Push yourself until you’re sweaty and red-faced. Far more people will be giving you a thumbs up and think more positively of you than will think negatively of you because of it.

Q12: Life philosophies question

I really loved your series on different schools of philosophy and how they directly connected to personal finance and actual modern life. First time I’ve really seen philosophy which always felt impractical to me connected so well to things that matter. Are you going to be continuing this series? Any more suggested reads?
– Jeremy

This is a difficult question, especially considering many philosophical schools of thought aren’t really directly concerned with how to live. Many such schools focus instead on more intellectual topics like defining basic meanings and such, which sometimes makes philosophy seem more esoteric and less practical (as you noted). Other schools argue for approaches for life that would be largely unproductive to discuss on The Simple Dollar, such as nihilism. I’m also intentionally trying to avoid religions as to avoid arguments about theology.

I think I could write an interesting article on utilitarianism and also on transcendentalism. Here’s a brief summary of utilitarianism as a life philosophy; for transcendentalism, you’d probably want to look at my previous article on Thoreau’s Walden.

Aside from that, I’m not quite sure what I could write about that would have compelling thoughts or ties to personal finance and living modern life in a positive fashion.

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.

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