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. We need a financial plan
2. Checking and savings with interest
3. Student loan paydown best option?
4. Time for financial advisor?
5. What car maintenance is necessary?
6. Savings for specific goals
7. Time to pay off mortgage?
8. Winter storm preparations
9. Figuring out grocery expenses
10. How I get things done
11. Chess: a great frugal hobby
12. Talking to boss about overworking
In the next few hours, our town is anticipating somewhere between a foot and a foot and a half of snow, coupled with blowing winds between 20 and 30 miles per hour. This is prime conditions for some enormous snowdrifts and complete whiteouts where you can’t see your hand in front of your face.
Our snowblower is ready to go and is full of gas. We have plenty of provisions on hand (something I talk about a bit more in question #8). Our kids are anticipating at least one snow day (Tuesday) and possibly more after that. We have lots of blankets in case of a power outage, too.
It feels like Iowa winter has finally truly begun … but it didn’t start until Groundhog Day.
I’m 42, married, with a 2 year old. My husband, who I married just 3.5 years ago, and I have a combined income of about $200K. Of that my income is $135K from a salaried job that is very meaningful and full of opportunity but not making me happy. I work for a small privately owned consulting firm that has no operations in place and that in and of itself drains me daily. My husband runs his own improv and presentation coaching buisness and I think he has more potential than I do, but not the same work ethic. I have about $150K in retirement savings and he has $0. We live in Denver and the housing market is getting bad. We rent from his dad, we are living in a flip they embarked on before I entered the picture and the tiny kitchen is driving me crazy. My primary worry in life is money and security and I want to make the right decisions but don’t know what they are. I’d like to move, I’d like more flexibility at work, I’d like a reliable joint financial plan that we are working toward. We began the house hunt and of course it would pin me down professionally but in the long run may be better for us?? Any advice?
It sounds to me like you have a bunch of goals. You want to have security in the form of money in the bank. You want to have a more flexible job. You also want a new house, one that’s probably more expensive than what you have.
The only way you are going to hit those goals is to spend significantly less than what you earn for quite a while. That is the hard part of financial planning, the part that people don’t like talking about. It’s true, though. If you’re spending everything you bring in, you are never going to be able to achieve those big goals that you have.
So, right now, don’t worry so much about a “financial plan.” Instead, worry about accumulating 25% (at least) of your take-home money each month in a savings account. Make 25% of your family’s take-home your goal this month. Then do it again next month. And the month after that.
If you can’t do that, no financial plan in the world is going to help. Sure, you’ll make progress toward your goals, but the progress will be so slow that you’ll be retired before you have enough money to pull those things off.
Focus on learning to live on less. No financial plan works if you can’t pull off that trick. When you have that as your routine and have some cash to work with, then worry about a financial plan.
I read your article on letting your money work for you and really enjoyed it. But I feel like the specifics of what account to open to get the compound interest are very fuzzy to me. I just graduated from college and am looking to start saving. What do you recommend?
Honestly, there are a lot of good banks out there that provide a solid interest rate on savings accounts and even on checking accounts. The Simple Dollar maintains a pretty current list of many of those options.
I have been using Capital One 360 for almost a decade in its various incarnations. While they don’t offer the highest interest rate, they do offer the ability to make separate savings accounts for your different goals (each with their own automatic transfer plans from your checking). Add into that the fact that all of my online bill pay stuff is there and I don’t really have a reason to switch away. I like the service they offer.
A savings account is a great way to start building an emergency fund and to save for short-term goals. It’s not the best way to save for long-term goals like retirement. For that, you should sign up for the 401(k) plan at work (which may offer matching funds) or for your own Roth IRA through a brokerage (I use Vanguard).
We’re already maxing out our 401Ks and saving a little each month. Is it ok to aggressively pay down our student loans (in 4.5 years instead of 10), or should we be using the money to invest in something else (backdoor Roth IRA or stocks)?
It’s absolutely fine to pay down your student loans, especially given the amount you’re saving for retirement.
I view early payoff of loans as being like an investment with a fixed interest rate equal to the interest on your loan, except that return is tax-free (because you’re paying off that loan early with after-tax money). Naturally, it’s a very bad idea to get into more debt, but given that you already have that debt, eliminating it is definitely a solid financial choice.
Given that your retirement plan at work is maxed out and you name no other significant goals, I’d hammer that student loan.
Jim had a second question in the same email!
I’ve put off getting a financial advisor, but now that we have savings and a good amount in 401ks/investments, should we get one? Any advice on a flat fee advisor (not working on commissions)?
If you’re going to get an advisor, a flat-fee advisor is definitely the way to go. While many commission-based advisors do give good advice, they do have a financial conflict of interest in terms of guiding you into specific investments.
Having said that, I’m not sure you’re in a state to need a financial advisor. You don’t really need one for your 401(k), nor do you need one for a small cash savings for an emergency fund. If you follow with the advice in question No. 3 and just pay down your debts, you don’t need one for that either.
I don’t think a financial advisor will offer much help at this point. Wait until you’re debt free with some emergency fund built up and then talk to one.
Recently I took my Camry in for a 200k mile checkup. They suggested all these various flushes and whatnot that I’m not sure are completely necessary, as well as other things (wiper blade replacement, cabin air filter replacement) that I could do easily. The easier things (air filter replacements) they’ll charge upwards of $100 for, but it is a $5 filter and is pretty easy to do yourself. The various flushes are a bit more confusing, but after some quick googling, not all of them appear to be necessary.
Do you have advice on which car maintenance items are truly necessary, and which are common “up-sells” that may not be completely necessary?
Every single bit of maintenance that your car needs is spelled out in your owner’s manual in the maintenance section. That’s really all of the guidance that you need.
The manual will go through all of the things that need to be maintained on a schedule and the ones that need to be maintained as needed. Follow that guide to the letter and you’re fine.
As for doing it yourself, take a look at that maintenance list and decide for yourself which ones you think you can tackle. Some of them will be easy. Other ones might be tricky. Leave the trickier ones to the auto repairman.
Really can’t solve this budgeting dilemma. Trying to determine what percent of income we are saving, should I count things like: savings for next car, next vacation, child’s college account? Are we really “saving” this money, if we know it will eventually be spent? To my way of thinking, financial freedom savings are monies saved with NO INTENTIONS of being spent — that money’s job is just to grow and earn more money. So do we count those other savings, or how to think about this quandary?
I view all savings as money that will eventually be spent. However, some of that money will be spent after I die and take the form of gifts to my children or donations to charities.
Because of that, I always count everything I am saving. Eventually, I am going to spend it. My final wishes for how to spend the remaining money is in my estate plan.
Furthermore, if I am ever in a real pinch, I can take money out of my accounts if I need to. I can tap them for things that I may need. Those accounts, even if I plan to never touch them, are an asset that I can use if a crisis ever occurs.
For those reasons, my net worth calculations include every dime that I have in the bank.
I’m 29 and my husband is 32. In May, we have the opportunity to pay off our mortgage (our only debt).
A few more facts about our financial situation:
· According to the assessor’s website, our house is worth $132,200 (possibly more after an appraisal as we’ve done numerous home improvements); he purchased it for $125K in 2012 and we plan on living there for at least another 5-7 years.
· After paying off our house, we would have $45K left in liquid funds, which would constitute our emergency fund.
· We have a combined gross income of about $90K/year.
· I currently have about $30K in my retirement accounts; my husband has about $15K.
· We net about $4,700 a month after all deductions (including retirement), and our monthly spend is about $1,200 (excluding our current hefty mortgage payment of $1,091).
· Our financial goals: to be debt free and live off his income while saving/investing mine.
· Our interest rate on the house is 3.75% and the money we would use to pay the mortgage is currently split between savings (earning nothing) and stocks.
I know people advise against paying off a mortgage early for a variety of reasons (no tax deductions, better investment options, etc.). From my perspective, however, I think this is a great opportunity for our situation. We’ve talked it over with both our parents and I’d be interested to get your two cents.
I don’t buy into those reasons against paying off a home early unless you have a huge mortgage. For a small mortgage like what you have, for a married couple, it’s not offering huge tax benefits beyond what you can get from your standard deduction, and any investment options that beat your mortgage interest rate are going to include a healthy spoonful of risk.
On the other hand, paying off your mortgage early improves your monthly cash flow, meaning you’re free to switch jobs if you want or save a huge amount each month for your other goals.
For me, rather than arguing about dry dollars and cents here, it comes down to personal goals. If you’re excited about paying off your mortgage, pay it off. You’re going to be glad that you did it. You won’t regret it. It’s not a bad financial move no matter how you spin it.
What extra preparations do you do for your family when you hear that there is a big winter storm coming?
As I alluded to in the introduction to this article, we are preparing for a big winter storm as I write this.
Here are some of the things that we do:
- We have enough food and beverages on hand that we could survive for a few days without any electricity or running water without any problem.
- We have enough food on hand to survive for quite a while if we’re snowed in.
- We have tons of blankets sitting in a pile in our family room if we lose power.
- We have lots of flashlights in a couple places around the house, too.
- We have our electronic devices, like cell phones and such, fully charged, and have our battery chargers fully charged, too.
- We have a snowblower and a full container of gas, as well as multiple snow shovels.
We’re pretty ready for whatever may come. If those resources aren’t enough to help us get through, then we’re having the worst winter storm of all time.
I am 34, husband is 33, three kids under 8 at home. We do pretty well financially with one big problem. Whenever we go grocery shopping the bill ends up way bigger than we expect. We go home and go through the receipt and pretty much everything is necessary but maybe two or three things and still the bill is just huge.
I don’t understand how we can be spending $350 a week for groceries. That’s like $1,400 a month! I think there is something fundamental we are doing wrong.
There could be a lot of things going on here, but my main suspicion is that, when you go grocery shopping, you approach it without a clear plan in mind.
I strongly encourage you to try a process of making a meal plan for the week before you ever go grocery shopping, then make a grocery list from that meal plan. Make the meal plan by looking at the grocery store flyer (which you can find on your store’s website) and choosing meals that utilize items that are on sale at the store. Then, for each meal, add the items you need to your grocery list, many of which will thus be on sale because you chose items for the meal plan from the grocery sale flyer. Then, go around your house and check on your usual staples and household supplies – if you need some, add them to your list.
When you’re in the store, go for lower cost brands and generics for many of the things on your list. You might find that you don’t like the generics in some cases, which just means that you’ll buy the non-generics the next time. In many cases, though, you’ll find the store brand version works just fine.
Also, stick to the list. Don’t buy stuff not on your list because you think you need it. Your list should tell you everything you need.
I’m willing to bet that if you’re not doing those things and you try this approach at the grocery store, your bill will fall drastically.
I enjoy your occasional articles on time management and the new strategies you are figuring out and utilizing. I thought I would share my simple strategy for managing time and to-dos.
On Sunday night or Monday morning, I make a big to-do list for the week. I make it in Todoist and I have an iPad Mini and an Android phone. So during the work day I keep Todoist open on my iPad Mini on my desk and I check off items as I do them. If something comes up I add it to the list. I tag everything as “work” or “personal” or a few other tags like that so I can see just “work” tasks if I want.
At the start of each day, I make three or so work tasks and three or so personal tasks have a top priority so that they rise to the top of the list.
The weekend free time usually revolves around emptying items off the list so I can have a fresh start on Monday.
That’s a pretty solid way of doing things. In fact, it’s not all that different than how I do things myself these days. I have something of a running to-do list – not a weekly one, per se, but a running one with everything I need or want to do on it – and then each day I pick a handful of items and make them high priority. Usually, a few are work related, a few are household related, and one or two are fun tasks that I’ll enjoy.
Like you, I use Todoist for this, but I have two monitors on my desk. The one on my right always has Todoist open with my to-do list showing. I usually keep it sorted with the high priority stuff on top.
I do a weekly review and delete some items and usually add a few more to it.
However, one thing that’s really useful for me is that I always have a piece of paper and a pen on my desk for jotting down notes and thoughts while I’m working. That kind of free form note taking enables me to jot down almost anything that comes to mind. Then, I deal with what’s on that sheet when I have some downtime and my current task is completed. That strategy just seems to work really well for me.
I just wanted to make a pitch for you mentioning chess as a great frugal hobby. My area has a chess club that meets once a week for practices and discussions and we also host and attend tournaments regularly. All you really need for excellent practice is an internet connection, though a board and pieces are useful (maybe $10). The only expenses are “nice” chess sets (which I’ve received as gifts, honestly, because the cheap ones are fine by me), a clock (if you have someone away from the club to practice with), and maybe some books (again I usually get them as gifts). My only expense with chess is going to club meetings and occasional tournament costs. It’s a social outlet and definitely a thinking outlet for me.
I agree that chess can be an inexpensive hobby. The wife and oldest child of one of my close friends are into competitive chess and participate in chess clubs and tournaments. He reports that it is pretty low cost other than the tournaments, which matches your experience, and some of the software they use. They usually both get a few chess books (that they request) for Christmas.
I’m always in favor of low cost hobbies that can absorb lots of hours if you’re into it, and chess definitely falls into that group. It’s a game that I’ve taught to my two oldest children and play it with them occasionally.
I tend to think that chess is like many other board games. If you put a lot of time into them to understand the strategies deeply, you’re going to get very good at the game and beat everyone around you. Doing that can be very rewarding.
I have a job where I genuinely like the work provided it comes at a pace I can handle in a 40-45 hour workweek. The problem is that I’m competent at what I do, so my manager’s response is to keep adding more and more stuff to my workload and expecting that I will stay later and later. My average workweek this month has been about 75 hours.
This isn’t acceptable to me. I have three young kids at home and I want to spend time with them.
I am trying to figure out how to talk to my boss about this without being a complainer. Do you have any suggestions?
That’s really a tough situation, but it’s one you shouldn’t have to live with.
If I were in your shoes, I’d sit down with your immediate supervisor and explain exactly what’s going through your mind. Make it clear that the extended workload is leading you straight to burning out because it’s taking you away from the other important things in your life. Work went from taking up 40% of your waking time, which is manageable, to 70% or so, which isn’t manageable for a parent or a person who wants to have any life outside of work.
If your supervisor responds negatively in any way, you should start looking for other work. You should not have to sacrifice your family at the altar of a job, ever. That’s never acceptable.
Having said that, many people put up with this kind of treatment because they are in a tight financial state. They can’t afford to put their job at risk because they’re living paycheck to paycheck, so their boss can do this to them. This is especially true of competent people who want to do a good job – they’ll try to do what’s asked of them and it will keep building up until life is difficult.
The key, of course, is to have money in the bank so that you can financially handle a job change. You should also have an up-to-date resume and a skill set that other people are going to want. Having those things in your back pocket makes it a lot easier to stand up for yourself at work. It’s yet another amazing thing that frugality can help with.
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.