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. Medical debt late in life
2. Three best personal finance books
3. Best use of a raise
4. Books like Wisdom of Frugality
5. Adjusting budgeting methods
6. Annual cost of dog ownership
7. Regular versus Roth?
8. Obsessing over finances actually stress?
9. Buying into stocks right now
10. National health care thoughts
11. Food budgeting difficulty
12. Video games, time, and money
Over the next several months, we’re undergoing a series of minor renovations and room repurposing in our home. My current office is being converted into a child’s bedroom and I’m moving to a corner workspace in our basement. We’re changing around our family room to make it more of a no-screen room oriented toward reading and playing board games and puzzles and such.
This means a lot of moving things around, a lot of little projects, a lot of evaluation of possessions, and so on. Should we keep this? Should we keep that? Where should this go? It’s a pretty time consuming process, one that’s produced more than a few trips to Goodwill.
Yet, somehow, it’s a cathartic process. It feels good to nudge our home in a direction that’s more useful to everyone on the average.
I am debt free completely after many years of stupidity and now own a modest home. I have read tons of financial books and follow Dave Ramsey and Suze Orman. But the one topic I can’t really find much out about is how to weather a catastrophic health event (short of dying) without wiping out all my savings. And my greatest fear is a hospital somehow seizing my house out from under me leaving me homeless while old and sick. I picture sending giant payments to a cold heartless medical system and scrimping on food and other creature comforts! Maybe you could write an article on this topic. I have told older family members with big medical bills to just pay them $50 a month and continue to enjoy their retirement. But can a hospital find out what assets you have and force you to completely liquidate?? Also I own my home jointly with my longtime boyfriend and we do not plan to marry because he is very unhealthy and I do not want to be stuck with his medical bills. Could a hospital seize my house since he is on the title?? This is a very good topic for your blog maybe. As you can see I am the classic female who fears ending up a bag lady!
Quite honestly, the best thing a person can do to avoid this scenario of being elderly and facing huge medical debts is to sign up for Medicare as soon as they’re eligible and then also find some gap coverage that helps pay for the gap between what Medicare covers and what they can afford to pay.
The various parts of Medicare actually do provide pretty solid coverage against extreme expenses, but it doesn’t cover everything. There are often high copays (over $1,000 in some cases) and there are some outpatient procedures that have deductibles that are 20% of the total cost of the procedure.
That’s where gap coverage comes in. It’s usually fairly affordable and provides coverage for the gap between Medicare and what you can actually afford in unexpected events. Basically, gap coverage chops those copays and deductibles down to more manageable numbers.
Another step you should strongly consider, starting in your 50s or even in your 40s, is signing up for a HSA and making annual contributions if your employer offers it. A HSA is a special savings account into which your contributions are tax deductible and, when you take money out and use it for medical purposes, there are no tax penalties. It’s a good way to start saving in your 40s and 50s for things like Medicare copays and deductibles when you reach retirement age.
A final tip is to request itemized medical bills every time you’re supposed to pay for anything out of pocket and make sure that the items on the bill are services you actually received. Coding errors happen more often than you think and those errors often result in you having to pay more than you should.
I stumbled onto your site while surfing about investing and retirement and found the 52 Personal Finance Books in 52 Weeks article very informative. Does Trent have or if he were forced to make a list of the top three books, which ones would they be? I have read a few of the books and look forward to the reply.
52 Personal Finance Books in 52 Weeks was a series I did early on with The Simple Dollar where I did just that – I read a personal finance book a week for a year and offered up some brief comments on each one. Since then, I’ve easily read 100 more.
So… what are the three best ones?
I still think Your Money or Your Life by Joe Dominguez and Vicki Robin is the best personal finance book out there, all around. It takes a “whole life” perspective to personal finance, recognizing that our financial choices undergird almost every aspect of our life, and tries to guide people to figuring out how to maximize their finances to obtain their best possible life.
If you’re struggling to deal with debt, The Total Money Makeover by Dave Ramsey is amazing. I like it the most of his books because he almost entirely sticks at what he’s good at, which is setting up a simple model for debt repayment and providing firm coaching through that model. I’m less interested in his investment advice, but that’s largely absent in this book, which is where Ramsey really hits his strengths.
For a third… that’s very difficult. I think I’d probably suggest that you find a personal finance book that matches up with your specific situation. Everyone’s situation is different, and different books speak well to different situations.
Lets say you contribute a decent amount to your IRAs and to your regular investments which are both similarly structured portfolios. Let’s say you have no debts and have an emergency fund.
Now if you were to get an extra $1000 or $2000 a year (or more), would you invest it in your IRA for the future, or the investments just in case you need to use it before you hit retirement age? Or what?
If I didn’t have any other pressing goals in life, I’d put it into my IRA with the intent of retiring a bit earlier or retiring with a bit more security.
My philosophy is that if you’re investing, it should be done with a goal in mind. A goal can help you figure out things like your risk tolerance and your timeline, both of which will inform what things you’re actually investing in. If you don’t have a goal, you really can’t assess how much risk you can tolerate or whether you should be investing for the short term or the medium term or the long term.
You clearly have one goal – saving for retirement. It’s a goal most people have. Investing for that goal is pretty much never a bad choice. It should really only be trumped when you can clearly articulate a different goal that’s more important to you. Do you have one? If not, sock money away in that IRA!
I absolutely loved the series on Wisdom of Frugality. Hoped you would end it with some suggestions for follow up reads.
This seems to be book recommendation week on The Simple Dollar! Here are three books I’ve enjoyed in the last couple of years that would make good follow-ups to The Wisdom of Frugality if you’re looking for a more philosophical view of the challenges of modern life.
Graceful Simplicity: The Philosophy and Politics of the Alternative American Dream by Jerome Segal is probably the best direct follow-up to The Wisdom of Frugality. To me, it carries the ideas in The Wisdom of Frugality to an obvious conclusion: frugality, as a life philosophy, leads to a different formulation of the American dream. What does that look like today? What does that mean today?
A Guide to the Good Life: The Ancient Art of Stoic Joy by William Irvine is a more practical look at applying a philosophical approach to daily life. Here, Irvine looks close at stoicism, a philosophy that The Wisdom of Frugality mentioned many times and that I’ve discussed on The Simple Dollar before as well. Stoicism has been an incredibly powerful part of my life for years.
The World Beyond Your Head: On Becoming an Individual in an Age of Distraction by Matthew Crawford is a bit further off of the path from The Wisdom of Frugality, but it addresses the era of constant distraction that we live in from a very thoughtful perspective. I tend to find that frugality is intimately connected to simple living, and this is a great book on the challenges of living a simpler life in a distracted era.
My current budget method is about as low-tech as it gets. Each month, I make a list of all the bills I have to pay and write them down on lined paper (this includes a zero-sum budget where the leftover goes to extra student loan payments or a small ‘fun fund’ for the month.) I write down each transaction in its appropriate box or column, deduct it from what I had budgeted in that category, and highlight it pink if it has cleared my checking.
If I used a credit card for that transaction, I record it on the paper, deduct it from what I have left in that category, and then I move that amount from my checking into a “Pay to XYZ Credit Card” savings account (I have several savings accounts set up for this purpose, one for each credit card). I then highlight it orange. This way, the money is set aside and earmarked for the card in a tangible way. I pay each card several times per month. I feel this is an effective way to reap the credit card rewards and it helps me ‘outsmart myself’ from having more cash around than I really ‘have’ to spend.
My issue is this: I am getting married to a wonderful man who is not as diligent about budgeting as I am. He has never had to worry about money much, nor is he a worrier like I am. This method is easy when you have 10 set bills per month and 2-3 variable categories with only about 20 transactions per month. But when you throw in tracking finances for two people across multiple cards and many more variable categories, it becomes almost impossible. If he were willing to hand over 100% of the finances to me I would happily do all the tracking, but he is not interested in that.
My questions are: is there a name for any of my methods that would help me research how people make them work (I see the zero-sum and maybe a bit of the envelope method)? Do you know of anyone who uses this ‘move cash to earmarked account’ strategy? I have tried YNAB but I find it cumbersome with only my own accounts to track, plus it doesn\’t seem to have the features that I can do by hand. Should I give up my old method to get us both on the YNAB bandwagon (or similar software)? Can this dog learn new tricks?
The complexities of tracking expenses for two people (or more) is a difficult challenge. It can be done, but it’s going to easily double the time you’re investing in this and it’s likely going to cause at least some friction with your partner.
My suggestion is to either accept the additional time burden (which seems like it’s untenable to you), switch to a less intense system (like simply reviewing monthly statements), or else switching to a system that’s aided by automation, like Mint or YNAB.
I personally use a system with a bunch of accounts that are earmarked for various purposes using Capital One 360, which allows you to make tons of accounts like this. However, I have all the transfers automated so I barely have to think about it. It just happens almost automatically.
How much does it cost to own a dog per year? My family is considering getting a dog and I am trying to figure out how much it will cost and the numbers I find on Google are all over the place.
The numbers are all over the place for several reasons. One, how big is the dog? Bigger dogs require a lot more food. Two, how often will the dog require paying someone for outside care, such as walking during the day or care while you’re traveling? Three, how humanely do you intend to treat the dog? What’s the quality of their food? How active do you intend to be with their vet checkups beyond the minimal annual shots? If you’re faced with some stiff vet bills for treatment for a condition, how will you handle it? I’m not going to argue one way or another on issues like this, but it is something to consider when you add a pet to your family.
Those kinds of things change the cost per year of owning a dog drastically. Many people who estimate costs bake in a number of assumptions about those questions. For example, are you feeding your dog a natural foods diet or a 50 pound bag of Ol’ Roy? That’s going to have a drastic difference in cost, but many people who quote a quick dollar figure are going with some assumption about a question like that.
In other words, it’s not an easy question to answer. In general, however, a smaller dog will be less expensive and won’t be as costly to feed and maintain well compared to a large dog.
I am married and we filed jointly. We are currently ages 40 and 47. We earn enough pre-tax income to only be eligible for the 2018 tax reform deduction amount of $24,000. Itemization is no longer an advantage based on current combined income. Both my husband and I contribute the max amount to our Roth IRA\’s and are both in a position to max out our contributions to our companies’ 401k’s, both offer employer match. Here’s my question: we have the choice between the traditional 401k and a Roth 401k, or a combination of both with a max annual contribution (currently $18,500) each. What are your recommendations for contributing to the regular 401k vs the Roth 401k? Financially we only have a mortgage as debt (no other debt) and have a healthy savings account balance. We live in Baltimore, MD. We have about 20 years before we plan to retire. Thoughts? Suggestions?
The number one factor when determining whether a person should contribute to a Roth or a Traditional retirement account, whether it’s a 401(k) or an IRA, is whether or not you believe that income tax rates are going to go up from where they’re at right now. If you believe that they are, then you should be contributing to a Roth. If you believe that they’re likely to go down, then you should be contributing to a Traditional.
My belief is that over the next 40 years, income tax rates are going to go up somewhat, thus I usually nudge people toward Roth retirement investments if they’re eligible.
In general, if you have a Roth 401(k) option available to you, I almost universally recommend it over a traditional 401(k).
Wanted to share a theory that focusing heavily on finances is a result of stress. People who worry and stress about life are more likely to obsess over their finances. Thoughts?
For me, at least, I found that the stress around money slowly grew for years and years until I reached a critical point and actually started to pay attention to what I needed to do to straighten out my finances, and from that peak my stress related to finances and career has gone down steadily.
Having said that, I think there is a connection, at least to that initial “switch” that gets people to start focusing on their finances. I think that there comes a point for many people where the stress of stumbling through life financially forces them to change their habits in some fashion. For some, that might come off seeming like a money “obsession,” at least for a while.
I think it is deeply stressful to continually live a life on the financial precipice, and financial management can be a way to help yourself deal with that stress.
I have 100,000 dollars in my savings account. my wife and I both max out our 401ks every year. We’d like to start start getting a VTSAX started. But is it a bad time to buy in?? I keep hearing there is some huge market correction for everything happening soon. Should I just wait for that to start ?? OR do I just say f[orget] it and START!?!?
I’m assuming that you’re wanting to move some of that $100,000 in cash into VTSAX (the Vanguard Total Stock Market index fund).
My first question to you would be what your goal with this money is. What do you intend to do with it? Are you sitting on it for an emergency? Is it to eventually buy a home? Is it for early retirement? How far off do you think that goal is? The big reason here is that, as mentioned earlier, without a clear goal, you can’t establish a clear timeline for your investments, and without that timeline, you can’t really figure out what investment option is best. The stock market is always volatile, with big gain years mixed in with zero gain years and years with losses. On average, that adds up to a nice average annual return, but a 25% return one year and a 15% loss the next year averages out to a 5% annual return, which looks good, but what if you’re only in it for one year? Will it be the +25% year or the -15% year? That’s why goals and timelines are so vital.
I’d suggest sitting down and figuring out why you’re investing this money, what you’re aiming for, how far off it is, and how much risk you can stomach (in other words, do things go really bad if you lose 40% of your investment in the year before you want to tap it?).
If you do decide to go into stocks, don’t waste a second worrying about timing the market. It’s impossible for an individual investor to time the market with enough accuracy to make up for the time spent out of the market. Individual investors are virtually guaranteed to miss the peak and also miss the bottom, and when you’re off of those by even a few percentage points, you aren’t really gaining anything by the timing, and if you miss by more than that, you’re probably losing money in the timing. Don’t bother. Invest now and keep investing until you have a non-market reason to change things.
Do you think there should be a national health care system like in the UK where people can just go to the doctor and receive medical care without being billed and everyone just pays higher taxes to cover the whole cost?
First of all, let me be clear in saying that my main interest in The Simple Dollar is addressing the real financial issues that people face right now. Rather than looking at what might be, I’m interested instead in helping people with the situation they actually have, right now.
The idea of getting perfect health care without a bill and having it paid for by “taxes” that you’re not directly responsible for outside of what’s stripped out of your check each pay period sounds great, but the devil is in the details, and it is in those details where the real challenge lies. This is not a simple question to be answered, just like every other issue of any importance, and if we try to reduce it to a ten second sound bite or a “yes” or “no” answer, we do ourselves a grave disservice.
There is good conversation and debate to be had about health care, but it’s very difficult to find this conversation in an angry world where you have to quickly align with one team or another and you’re immediately angry with anyone who disagrees with you. That’s not helpful to anyone, in my opinion.
Instead, I’m going to stick with helping people get the most out of their dollars (and their life) today, with the system we have today. My own ideas about what kind of system we should have are my own and basically irrelevant to the cause of helping people get the most out of their dollars today.
The one thing I ask is to not label someone who disagrees with you as “the enemy” or some other negative label without having some kind of substantive conversation with that person. Ask questions and listen and figure out what that person really stands for.
What I’m curious to see is a 30-day challenge (or more) where you have to radically change your diet and eating style to see how it effects your budget. An example here would be imagine a member of the family is diagnosed with a bowel disease, like colitis, where a radical change in diet is necessary. Sticking to a low FODMAP diet changes the dynamics of both meal planning and budgeting. Do it for a month and write up an article! Or maybe pick a gluten-free and dairy-free diet to simulate one family member with lactose intolerance and another Celiac’s. I’m suggesting this challenge because I’ve yet to find a personal finance site actually tackle these challenges that part of the population has to live with on a daily basis. Many articles mention ways to save money when preparing meals, but when you have really hard dietary restrictions, it’s tough. Show your readers that it’s not easy!
Personally, I eat a vegetarian diet that’s about 80% vegan and 20% vegetarian, and I eat fish on rare occasion. I usually describe myself as vegetarian but think of myself internally as “flexibly vegan.” I do so for health reasons. My family does not follow the same diet – they do eat some vegetarian meals, but many meals here have meat as a main course where I cook veggies or something like that. My wife is about 99% vegetarian at this point. Also, one close friend of my children has a disease that requires a gluten-free diet and we make meal choices to accommodate that friend.
Anyway, when you put that big of a blanket restriction on your diet, it does impact how you can shop for food. You look at the grocery store flyer and there are simply a lot of options in there that you’re not buying, and because of that, you can’t chase bargains very much at all. It’s hard.
What I do in my situation is simply understand what I can’t eat, then cross off those items when I’m planning meals. If there’s meat in the grocery store flyer, I ignore it (unless it’s for a main course for guests or other family members).
My general meal planning structure is to plan about seven to ten days of meals at once. I start with our calendar and the grocery store flyer and figure out what time and logistic restrictions we have on meals, then use the flyer to figure out what ingredients are on sale that can make meals that fit those time and logistic restrictions. The addition of dietary restriction jumps in here, causing me to cross off many items in the grocery store flyer. I then try to pencil in meals centered around the remaining uncrossed items from the flyer.
This basic procedure is true for almost any dietary restriction. Yes, some are more strict than others and will eliminate a lot of foods, but there’s almost always a few things in most grocery store flyers that match up with what a person can eat. Start with those as your foundation for meal planning for the week.
I am 48 years old, my husband is 47. We converted our basement into an apartment for our son so he could live rent free while he’s working until he can afford to buy a house, and the rent is free as long as he has a job or is spending 8 hours a day looking for one. When he’s working, we do charge him “rent” which we put aside in savings for a house down payment for him. He contributes to the food and the utilities here too. He has a good job so that’s not a problem and he is saving for a house.
The problem is that with the remainder of his money, he buys lots of video games. He comes home from work and plays video games for 3-4 hours in the evening and rarely leaves the house. He spends hundreds a month on his games.
What can we do to nudge him in a better direction?
While he could, of course, be more productive with his time, I actually don’t think he’s in as bad of a place as you think. The average American watches five hours of television a day. If he’s simply eliminating the TV time and replacing it with video game time, he’s probably not far off of the American average.
As for the cost, the average American cable bill is $103 per month. If he buys two new releases a month and doesn’t pay for cable, that, again, is about the American average. (There are ways to be really frugal with video gaming as a hobby, too, so it’s likely he’s not even spending that much.)
In other words, my feeling is that if he’s holding down a good job and seems relatively happy with it, I wouldn’t stress about this too much. He’s probably trying to figure out how to adjust to having a real job, with all of the stresses that it brings into his life.
My approach, if I were in your shoes, would be to talk about goals at the dinner table with him like you’re adults, not as a parent to a child. Talk openly and frankly about the goals you and your partner have over the next ten to fifteen years, just as if he’s another adult you care deeply about, like a sibling you’re still close to or your best friend. Then just ask him where he thinks he’ll be at that point. Then, without pressuring him, slide back into talking about how you’re going to get from where you’re at to where you want to go – your plan for achieving your goal. Don’t push him even one little bit. Just let the obvious questions take seed in his mind.
Don’t make this an “every dinner” thing. Just nudge that topic there once a week or once every other week or so, especially if you’ve hit some milestone on your journeys in life. How does that milestone relate to where you want to go? What things did you do to get there? Hit upon those things, but make it a natural conversation that’s as much with your partner as with your kid. You are adults talking about life, not a parent instructing a kid. Let him form his own ideas and draw his own conclusions.
That’s how I’d handle it, anyway. Don’t force anything unless he’s obviously going off the rails, and playing video games in the evening while holding down a good job and saving for a down payment is pretty much the opposite of “going off the rails.”
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.