Questions About Coats, Politics, Retention Bonuses, Napoleon Hill, 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. Retention bonus versus retirement
2. Don’t want anything for Christmas
3. Angry about politics
4. Saving versus paying off debts
5. Buy it for life: coats
6. Frugality and minimalism
7. Living off dividends
8. Inflation and retirement
9. Am I paranoid about risk?
10. Blogs, honesty, and employment
11. Think and Grow Rich
12. Early retirement for rental properties
13. Tax software question
14. Expensive career items
15. Book ideas for Christmas

I have a backpack that basically functions as a “portable office” for me. I take it to the library a couple days a week (if you’re ever in Ames, Iowa and wander around Ames Public Library in the mid-morning hours, you’ll likely find me around there somewhere) and to a coffee shop one or two mornings a month, along with other random places here and there.

My laptop lives in there (along with a charger and a pair of headphones), but I also keep a few reference and inspiration books, a current magazine or two, some paper and pens, a memory stick, a couple of charging cables and an AC adapter, a multi-tool, some breath mints, and a few other odds and ends.

The weirdest thing? I keep a toothbrush and a small tube of toothpaste in there. Why? I have this weird quirk where I become paranoid that I haven’t brushed my teeth, so I’ve been known to sneak into bathrooms and brush them. It’s weird, I know, but I feel way better if I know my teeth are freshly scrubbed.

Why mention this? Just before I wrote this, I went through everything that was in there and realized about half of it was unnecessary, which removed about five pounds of weight from the pack.

Q1: Retention bonus versus retirement

I had a question about what you thought about the following. The place I am employed has a high turnover rate of employees last couple of years. In an effort to stabilize the staff the management has offered us a $5000. bonus to be paid as follows 40% end of October, 30% in April 2015 & 30% 1 yr from now. The catch is that this is a retention bonus & we must sign a contract to stay for at least 2 yrs. If we leave before 2 yrs we must repay any and all of the bonus we have received. Of course the bonus checks are taxed before we get them. I am 62 & have been thinking of retiring. I don’t know if I can stay (or want to stay) for 2 more yrs. I am just not sure when I will retire. Is it worth me taking a chance & receiving these checks with the possibllity that I may end up returning the money if I leave before two yrs? (I have no debt & don’t really need the money, but it would help pay health care before medicare kicks in if I retire before 65.
– Carly

Take the money and put it all in a savings account. Don’t even touch a dime of it. Just put it straight into savings. Then, keep working.

If you start strongly considering quitting, take a look at that account balance and ask if you really want to give that money back. “If I work for just a few more months, I can keep this money… but if I leave now, I have to give this money back.”

That kind of thinking is a very strong motivator to keep going.

In short, I think you should take the money and work until you’re 64. Not only will you have all of that retention bonus money, you’ll also be eligible for better Social Security benefits when you do quit. It will all make for a better retirement for you.

Q2: Don’t want anything for Christmas

For the last decade or more, my four siblings and I have given each other Christmas gifts mostly based on our respective Amazon wishlists. Sometimes, we go off-list, but usually we just buy each other an item between $20 and $40 from our lists. We all love each other, but we live in different places and often have no idea what kind of things we each want at a given moment.

Over the past two years, I’ve become much more frugal and have turned my finances around. Problem is that I can’t come up with anything for my wishlist. I don’t want to just throw stuff I don’t want or need on there to make them happy. Help?!
– Kim

I have several suggestions here.

First, consider whether there are long-lasting versions of items you use every day that would fit into that money range. Do you have a really good paring knife or a really good can opener? Look around your house for items that might need replacing that will have a long lifespan.

Second, are there any reference books for things that you regularly do that would be useful to have? For example, do you have a good all-purpose cookbook or a home repair book?

Third, are there quality versions of items you use all the time? For example, do you own any merino wool socks? I like Darn Tough Socks myself – they’re expensive, but they’re well-made and last for a long time and are insanely comfortable.

Finally, are there edible items that you might use? For example, perhaps you would want a bottle of truffle oil to help with cooking at home.

Those are the tactics I often use when coming up with gift ideas.

Q3: Angry about politics

I am disturbed that you never write anything about politics. We just lost a huge election that will cost every one of your readers thousands of dollars in higher insurance prices while our schools get worse and worse. How can you live with yourself having a platform that big and not use it to sway people to vote sensibly?
– Adam

For starters, I am interested in helping people struggling with their individual financial picture, period. People struggle with their finances regardless of whether they’re Republican or Democrat, conservative or liberal. Loading the advice with political thoughts inherently pushes away some of those people.

For another, people often don’t vote for their own economic self-interests. They’ll often vote for ideals, and ideals vary a lot from person to person. You can lecture someone all day long about their economic self-interest, but if they are voting based on ideals, it’s not going to be an effective use of time.

For yet another, different economic groups benefit from different policies. I’ve written advice that’s been helpful for the unemployed, the people working at a minimum wage job, retired folks on a fixed income, people earning a strong salary, and even some that are quite wealthy. Each of those groups is going to find value in different economic policies, some of which are espoused by the Democrats and some of which are espoused by the Republicans.

In the end, it makes no sense for me to back or promote a particular political platform. It fails to speak to a lot of readers, alienates many of the rest of the readers, and sways very few of them. It just doesn’t help.

Q4: Saving versus paying off debts

Should I start saving money before getting debt-free?

At the first look, I would say no. The interests for the debts are higher than the rate for savings, so it is a bad deal in my opinion.

On the other hand, setting up an automatic saving plan has the advantage to prevent from spending too much money and enables the effect of compound interest as early as possible.

Do you have any experience or tips or did you think about that question more than I do?
– Alex

If you’re talking about just building up money in savings, then the answer is mixed.

It’s a great idea to have an emergency fund. An emergency fund is simply some amount of cash you have in a savings account to handle emergencies. A savings account is about the safest place to keep cash for an emergency fund as it basically can’t lose any value, earns a small interest rate, and is very accessible without any tax implications or other difficulties. If you have high interest debt, I’d try to build a $1,000 emergency fund, then focus on the debt.

What about an automatic savings plan? I think it’s a good idea, but I wouldn’t transfer too much per week (or per month) if you still have outstanding debt. It will help you with easily refilling that emergency fund if you ever have to tap it.

So, I’d set up a smaller automatic transfer here, but my main focus would still be on the debt, especially once I reached the $1,000 point in my emergency fund.

Q5: Buy it for life: coats

Do you have any suggestions for buying a coat that will last for a lot of years? It seems like every coat I buy wears out or rips out within two to three years.
– Dennis

I have a green Carhartt arctic winter coat (they call this line the Extremes line these days) that I have worn for ten years. The thing looks basically new. It keeps me very warm when I’m outside and looks just fine (in my opinion). If this coat ever wears out – and I don’t expect it to do so for the next decade at least – I will replace it with a virtually identical one.

However, that coat is really designed for seriously cold winters. For example, last winter we had several days where the temperature didn’t rise above zero degrees Fahrenheit and reached -20 Fahrenheit on a regular basis.

If your winter isn’t that bad, I have heard many good things about the Eddie Bauer Geddes Parka. I have never actually owned one myself, but I have a friend who lives in a slightly warmer climate who swears by his and has owned one for about a decade, too.

Q6: Frugality and minimalism

Where does one draw the line between frugality and minimalism? Sometimes when I’m reading advice on frugality, it seems like the writer is trying to advocate some kind of weirdly minimalist lifestyle (you don’t do that too often) like they want me to live out of a backpack and live in a broom closet. I am careful with my money and want to spend less but I have no interest in living like that. It sounds miserable.
– Bianca

You’re absolutely right in pointing out that some people take pride in their pure minimalism. I am acquaintances with one person who lives in a 200 square foot efficiency rental and can probably put all of his possessions in his backpack and two duffel bags. He does this by choice as he believes he doesn’t really need “stuff” at all, just experiences. That’s a philosophy that really isn’t for everyone, of course.

Frugal types have a lot of different philosophies that they bring to the table beyond just minimalism, though. I know some very environmentally-focused folks who live quite frugally but do it to help the earth. There are some that can simply be described as “cheap.” The list goes on and on.

The thing is, everyone has to have their own philosophy and reasons for being frugal, and those reasons are going to differ from many other people who are also frugal. That doesn’t mean that you can’t share many of your tactics, but it does mean that you’re never going to share all tactics.

In other words, look for the things that you have in common and the tactics you both find useful, and don’t worry so much about what you don’t have in common and the tactics that aren’t as useful to one of you.

Q7: Living off dividends

You have mentioned in previous Mailbag posts that you and your wife are investing enough that you hope to live off of the dividends when you retire. I understand the concept but am wondering more on the execution. Investing in dividend specific funds? Other investment vehicles? I was wondering if you could share how you are planning to do that or if you want to keep your cards close to the vest, any other reading material on the subject.
– Shawn

I have looked into doing this, in fact. If I were to do this, I would put most of my money into an index fund that targets high-dividend stocks, like Vanguard High Dividend Yield Index Fund. It has a 2.82% annual yield, which means that’s effectively the “interest” you would earn from owning that fund. From what I can tell, that yield has been relatively steady over the last several years.

Let’s say, hypothetically, that I put $500,000 into this fund and just sat on it. It returns 2.82% per year in dividends. That would earn me $14,100 per year in dividend income. This would be very tight and probably create an uncomfortable lifestyle. If I were able to come up with $1 million, that would be $28,200 per year in dividend income, which would be much more tolerable for our family. What if I wanted to have $40,000 per year? That would require somewhere around $1.3 million in that fund.

The key thing to remember is that this is the amount I would need to have to live literally forever just on that income. I would earn nothing else and live for a thousand years. Neither of those are realistic at all. I would earn at least some income doing something – I am incapable of being fully idle. I also won’t live forever and I’m not worried about leaving behind a lot of money for my kids.

For us, this is just a possibility that’s on the board. For now, it’s not a consideration as we’re more interested in long-term growth than dividends, but this becomes more and more serious as we get closer to retirement.

Q8: Inflation and retirement

Shouldn’t you calculate inflation when you’re figuring up retirement numbers?

Let’s say I need to have a million in today’s dollars in the bank to retire. But I won’t be able to get there for ten years. Shouldn’t I be targeting 1.2 million or something like that?
– David

Inflation is essentially rolled into those calculations provided that you’re working with percentages and that you’re contributing percentages of your salary, both of which are true for a lot of workers. If you get a cost of living raise, for example, then your overall income goes up by some amount comparable to inflation and your retirement contribution, provided it’s a percentage of your pay, also goes up by that inflation-comparable amount.

So, let’s say you decide that 10% of your income will get you to your target number in 20 years. Assuming your income adjusts for inflation over time, that same 10% savings will also automatically adjust for inflation, causing your end result to also adjust for inflation.

This isn’t perfect, of course, but neither is a strict retirement calculation. You can’t really save for retirement at a guaranteed 7% return, nor can you guarantee a 2% inflation rate. All you can do is focus on what you can control, and that’s the percentage of your income that you save. If you stick with percentages and you get at least somewhat regular raises due to cost of living or other such factors, inflation will work itself in magically. You don’t really need to worry about it.

Q9: Am I paranoid about risk?

I am a single mother of three teenagers. After my husband passed away in 2005, I took his life insurance policy and paid off all of our debts and had about $300,000 left over. Since then, I’ve managed to increase that savings to about $600,000.

The problem is that I am absolutely scared to put any of that money at any risk. I could buy a handful of rental properties but then I convince myself that there won’t be renters or that they’ll destroy the properties or that it will be endless work. I could invest in stocks, but then I think that I can lose a ton of money quickly. So I don’t do anything. All of it is sitting in three savings accounts at three different banks.

I earn about $6,000 a year in interest but I could earn a lot more with that kind of money. The balances are safe, but I realize my money really isn’t working for me, but I am also scared to death to lose any of it. What can I do?
– Marlene

The only thing I can really say here is that if you don’t choose to let go of your stress about the risk, you’re never going to get a big return on your money (unless interest rates magically roll back to 2006 or 1982 levels). It just isn’t going to happen.

Right now, if you want more than 1% return on your money, you have to accept some form of risk. There isn’t a magic way to get around it.

The best thing you can do is diversify wildly and spread out that risk. How does that help? When some of your investments dip, the others will not. So, consider putting 10% into domestic stocks, 10% into foreign stocks, 10% into bonds, 10% into a real estate index fund, 10% into foreign currencies, and so on. Spread it out far and wide. That way, when one thing dips, you don’t really lose much of your overall value. A 40% drop in the stock market means only a 4% dip in your overall investments. With all of these different investments, many of them will be going up at any given time, so you’ll get a better return than that 1% (depending on what you choose) and you won’t have the sickening drops or risks that you would get from pure stocks or from owning rentals.

Q10: Blogs, honesty, and employment

Here’s the deal: I’ve started a blog, mostly because I would LOVE a creative output and what not. I’m really enjoying the process so far. However, I know that in the next few years I will be looking for a new job and I’m worried about future employers finding my blog as it will be somewhat political (isn’t everything, though?). I don’t have a problem using a pseudonym but I also have started taking crochet orders on the side (just a few orders so far) and I was hoping to use my blog to advertise for my crocheting. I’m looking into creating an Etsy shop and whatnot but I believe you need to use a real name for transactions.

What are your thoughts? I’d love to use my blog as a true reflection of self BUT I don’t want it to hurt me in the long run.
– Molly

It doesn’t appear as though you can’t use a pseudonym when selling on Etsy. In fact, building up a pseudonym that is known more for crocheting and politics might be useful as it would keep those things separate from your professional identity and give you a new “brand” to build.

I think it is a perfectly good idea for people to use pseudonyms online. It protects personal privacy and professional confusion.

You may also want to check with your workplace before doing anything with your real name. Many workplaces can get very upset if you start engaging in activities that might not represent the company well. Using a pseudonym dodges those problems.

Q11: Think and Grow Rich

Do you have any thoughts on Napoleon Hill’s book Think and Grow Rich? My boss swears by it but I don’t get it. Seems like wishful thinking to me.
– Eric

I’ll just quote what I said about the book in my 2007 review:

If a reader comes into this book seeking “help” in a get rich quick scheme, they’ll find it. If a reader comes into this book seeking guidance for how to get over a rough patch in life, they’ll find it. If a reader comes at this book needing a confidence booster for making a difficult professional leap, they’ll find it.

The problem is that this book winds up being all things to all people. The stuff Napoleon Hill talks about is merely an amplification of what you already believe and value. That’s because this book is really only about one thing: confidence. The answers for what most people need to do in their life are already in their own heads – this book is just about the confidence to get there.

And then:

I agree with the theme behind Think and Grow Rich – the idea that self-confidence and keeping your eyes on the goal are big parts of success – but they’re only a few pieces of a much larger puzzle.

In short, if your primary challenges in life are a sense of focus and a sense of feeling that you actually can achieve your dreams, read this book – but if you’re already confident and still aren’t making it, you may need to look for other answers to solve the problems in your life. For example, my biggest challenge in life is primarily time, so I didn’t find this book to be strongly valuable.

The value of the book is that it encourages people to have confidence in facing whatever problems are opposing them. Confidence (in reasonable moderation) is a very good thing. It helps you to have the courage to tackle difficult problems. However, confidence alone is just one ingredient in the stew of success. You need time, energy, good ideas, a willingness to fail, resilience, and so on.

Q12: Early retirement for rental properties

I have asked this question to several financial people I trust and I wanted to run it by you to see what you think. I am 56 years old. I have about $800,000 in a money market account right now – until about three months ago, it was all in stocks. I already have the taxes paid for on the capital gains so the $800,000 is mine, free and clear.

I would like to take that $800,000 and buy several rental homes in my area free and clear, then spend the rest of my days living off of the rental income and being a landlord (fixing them up, etc.). Let’s say, in theory, I could buy 8 rental homes, rent them for $500 a month, and 6 of them were full at any time. That’s $3,000 a month in income – $36,000 a year. If they’re all full, it’s $48,000 a year. Naturally, there are expenses like property tax and so on.

I can live on about $26,000 a year as I have done for the last decade. Does this feel like a “safe” strategy to you?
– Max

If you believe you will enjoy being a landlord, this sounds like a good idea. I’d guess that you’ll probably spend 10-20 hours a week doing work related to these properties and if that sounds like a enjoyable thing, you’ll probably make this work well.

If doing lots of maintenance work sounds miserable, though, then you’ll probably be miserable doing this and it won’t be worth it. If you involve a property manager, your profit margin will shrink substantially, pushing you into an area where it might be difficult to make it.

The final thing I’d ask myself is what I would do with all of that free time. Are you going to use one of those houses as a “flipping” project where you fix it up to resell it at a profit (or rent it at a higher rate)? Do you have other income streams in mind? Or do you plan on just relaxing? If you’re going to do something that’s got a good chance of earning money, then that’s another mark in favor of doing this; otherwise, it’s a mark against doing this.

Q13: Tax software question

I will be ordering one of the tax software program but can you tell me the best one? I have a sub-chapter S, a small very simple business, but have to file returns from 2006 forward.

I don’t mind paying something in the range of $80 or $90 if necessary, but I did lose my business and am now living on Social Security almost exclusively so cost is a critical factor. I guess I can do the returns manually if I have to.

I checked on H&R Block but I would have to pay for a business software for each year and that makes it prohibitive.
– Diane

The problem is that almost all tax software is sold on an annual basis, so you have to buy versions for each year. I don’t know of any reputable all-in-one package that will enable you to file a bunch of years of taxes for just one purchase.

I don’t know how complex your tax situation is, so it may be that you can largely replicate the forms from year to year. If that’s the case, it might be useful to just get one copy of the software, go through the system to generate all of the forms, and then essentially use them as a template for the other years, substituting in the numbers as you go along. If the business is small and very simple, this will probably work just fine.

In terms of a personal recommendation for software, I prefer TurboTax. I have been happy with it in virtually every iteration.

Q14: Expensive career items

I work in a technology consulting firm. All of my other coworkers have all of the latest gadgets and work really hard to maintain this aura/appearance of a “technology guru,” dressing like Steve Jobs. I don’t mind the clothes – having a bunch of well-made identical easy to maintain clothes is great – but keeping up with the gadgets is really expensive. They all have the latest generation of everything and are constantly upgrading. I’d estimate they spend $10K per year just on gadgetry. If I were to spend that much, I might as well be back at my old job as IT director at a public school. Yet if I don’t have this stuff, I don’t look as “technology adept” as the rest of them do and I almost feel like that’s required. Is this a justifiable expense?
– Saul

Here’s the thing: everyone has different ideas of what a tech expert should be like. When I think of the best technology expert I’ve ever known, I think of a guy who wore old blue jeans whose hair was always disheveled who used a very old Linux laptop as his primary computer system. Others may or may not picture the Steve Jobs clones you describe – I have no idea.

If I were you, I’d keep my own style and just do the best possible work. If you go on a consulting job and hit it out of the park, those people are going to think of you as a tech expert whether you’re a Steve Jobs clone or not.

I think you do have a professional obligation to at least be aware of the types of solutions people may want for their technical problems, but that doesn’t often equate to wearing a black mock turtleneck and buying an iPhone 6 on the day of release.

Q15: Book ideas for Christmas

Do you have any suggestions for thoughtful books I can give as Christmas gifts?
– Mavis

A good book depends entirely on who you’re buying the book for. I can usually suggest a book for someone when I know some things about them, but without knowing anything, it’s pretty difficult.

Knowing nothing about the recipient, I would either give them a book that truly changed my own life in some way – like Your Money or Your Life – or a book that I felt was deeply meaningful and still readable by a wide audience – like Middlesex.

Once you start adding details to the recipient, the picks can get better and better. For example, if I knew someone was a baseball fan, I’d get them a copy of The Boys of Summer by Roger Kahn or The Natural by Bernard Malamud. The recipient plays a huge role in finding a great book.

So, tell me more about the person and I can give you better ideas for a gift book for that person.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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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