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. De-cluttering strategies
2. Inexpensive strategies for preventing flu?
3. First credit card?
4. Investing in companies you respect
5. Introducing people to “super frugality”
6. Deciding to have a baby
7. Cheap gear for summer camping
8. “Anticipated tax rate at retirement”?
9. Pre-marriage money talk advice
10. Interviewing for next job
11. Defer taxes or not?
12. Overcoming defeatist wife
As many of you know, I’ve been involved in a number of community organizations in my area, so when a small conference of leaders of local community organizations was organized in my area, I was thrilled to jump on board.
In my previous career, I used to go to a number of conferences and, for me, the conferences back then were mostly all about the sessions. I would bump into old friends, but the big attraction for me was listening to interesting talks.
At this conference, things flipped around. The sessions were interesting, but the best part was conversations with people, even people I didn’t know well (or at all). I’d sit down with them at lunch or in between sessions and we’d have great conversations about the various challenges we each faced in our various community groups and situations.
The best part is that almost everyone was open about some of their challenges and also very open to hearing ideas and solutions.
I took a little notebook with me and, between the sessions and conversations, I wound up filling the whole thing with notes and ideas! Will they all turn into great actions? No, but at least a few of them will, and that means it was well worth it.
If you have a chance to go to a professional conference of some kind, attend the sessions, sure, but make sure you have plenty of time to talk to people there. This is even true if you’re a bit of an introvert like myself. If you don’t know what to talk about with someone, ask them questions about themselves. That’s always a good conversation starter.
I was wondering if you had any experience selling your used books. i’m looking to de-clutter with a baby on the way, and i have hundreds of books, the vast majority of which are in excellent condition. I’m not sure if it’s worth the effort to sell them individually online, if i should just try to sell them in bulk to a used book store, or just donate them somewhere.
Unless you have signed books or hardcovers or there’s something else exceptional about the books, it’s probably not worth it to sell them individually. However, you do have a few options.
One, you could save them for a yard or garage sale. Put them out on the table, sell them for $1 or $2 each on the first day, then lower the price on later days.
Two, you could donate them. Libraries are always happy to receive donations of books that are in good shape. If nothing else, they’ll take those books and sell them in their book sales in order to earn more money. You can also donate them to Goodwill.
Three, you could make a giant list of the books and offer them for $2 or $3 each on Craigslist. This may not be worth the footwork to you, depending on your situation.
Four, you could sell or swap them at a used bookstore. Used bookstores are sometimes selective on what they take, though. They won’t necessarily just take all of your books.
Five, you could stock them in Little Free Libraries in your area. This wouldn’t earn you anything in return, but it would ensure that these books get read by people in your community.
You can also mix it up between those options, of course.
I am looking for some inexpensive strategies besides the flu vaccine for reducing the chances of getting the flu. I am worried that this will be a bad year for it.
There are a number of things you can do.
First, wash your hands all the time. Wash them before every meal and every time you use the restroom. It’s not a bad idea to use hand sanitizer regularly, either, particularly after shaking hands.
Second, take some zinc supplements or lozenges. There is some evidence that zinc helps to reduce the impact of colds and other kinds of illnesses.
Third, try to avoid touching your face if you can. Avoid touching your mouth or nose in particular.
Finally, avoid crowds if you can. This is a big reason why I buy most Christmas gifts online these days, because crowded stores in December are begging for you to get an illness.
Those steps aren’t any kind of guarantee, but they will reduce your chances of getting sick this winter without spending too much (the only tip that isn’t free is the zinc).
I am looking for my first credit card. 25, married, one kid age 11 months, almost done with my undergraduate degree, all of my family as well as most of my wife’s family lives within a 5 hour drive, etc.
Your first credit card should be in line with the spending you do already. Where do you get gas? Where do you shop regularly? Look for the cards available from these sources, but make sure that they are Visas or Mastercards – don’t get a full store brand card that can only be used at that particular business.
Don’t worry so much about the interest rate on such cards. You should be paying off the entire balance every single month, so carrying a balance shouldn’t be a concern to you and that’s the only way that the interest rate matters.
Just choose a card that has a nice benefit related to the place that you shop or buy gas regularly. Target, for example, offers a card that has 5% off all purchases there. Some gas stations have cards that offer a similar discount and some also have point programs that work anywhere you shop. Grab the flyers for these cards and compare them.
What do you think about the idea of investing in stocks of companies that make products you use and you would work there? Investing in companies you respect in other words?
In general, I think that’s a questionable idea. I would not use that as the basis for investment.
Why not? Why shouldn’t you invest in companies that you believe in? The big reason is that just because you like their products and would like to work there doesn’t mean that they’re actually in good shape in terms of their business. The appearance of good products and a good business reputation does not mean that the business is profitable; if anything, it might be an indication that it isn’t.
It doesn’t “reward” the company, either, though it might reward some of their employees with stock options. Once stocks are for sale, the company has already sold them in an effort to raise money and help the founders of the company “cash in” on their efforts. The buying and selling of stocks on the stock market is between two private individuals that usually have nothing whatsoever to do directly with the company.
Overall, I usually recommend that people don’t invest in individual companies at all. Following an individual company and their relative profitability (or lack thereof) and how that changes over time can require some real devotion. There’s also the issue that Wall Street is going to be able to react to bad business news far more quickly than you, so if something goes wrong, you’re going to be the one left holding the bag.
I suggest investing in an index fund instead. An index fund contains a wide variety of stocks all bundled up into one investment and with a low fee. Try something like the Vanguard Total Stock Market Index.
My husband and I practice “super frugality.” We make about $110K per year but we have been saving half of our income in retirement accounts and investment accounts since 2002 and living off about $35K. We use every trick we know of to keep our spending low without living in a shack or driving a rusted-out car.
We are looking forward to retiring in a few years which is exciting for us but it is something that is hard to explain to our friends. Whenever we explain what we are doing to close friends they either don’t believe us or kind of chastise us for not spending that money on fun things.
I cannot think of anything more fun than waking up each morning without having to work for a living. But when I say that they agree but then they simply respond with more chastising about not buying stuff.
How can I explain things so that they understand? It is frustrating when your close friends don’t understand such fundamental things about your life.
First of all, you don’t need their approval whatsoever to follow your plan. I think you’re fully aware of that and are just seeking to have your friends understand the path you’re already committed to, but you shouldn’t let their lack of understanding of what you’re doing dissuade you.
Assuming that you’re mostly just interested in having them understand it, simply explain that you personally value being able to retire early than things like a nice car and you’re putting your money where your mouth is. There’s really no need to explain more than that unless they want details.
Many of the negative reactions people receive to plans like this come about because people want to defend the paths they’ve personally chosen. They don’t necessarily dislike your plan. They just feel as though the fact that you’ve chosen a different plan means that there may be something wrong with the way they’re doing things and they feel an innate desire to defend those choices, and one way to do that is to criticize your choices.
How did you and Sarah decide that you were financially ready to have a baby?
To be honest, our conclusion that we were “financially ready” was a really, really poor decision. We were not “financially ready” to have a child and that’s why we had a big financial meltdown about six months after our first child was born.
Why did we think we were ready? Basically, we looked at our incomes and concluded that we were making more money than other people who had children so we must be ready to have children, right?
Wrong. So wrong. Income alone isn’t enough.
Before you have a child, you should be consistently spending less than you earn. Every single month, unless there is something really unusual that happened, something that very rarely happens. If you can’t do that now, you’re going to be in a real pickle when that baby comes and it’s slurping down child care costs, formula costs, and so on.
If you’re not able to sock away at least $100 a week right now, you’re not ready to have a child. That’s the rule I would give to everyone.
We are considering spending a month next summer camping out of our car and visiting a bunch of national parks. Do you have any cheap camping strategies that would reduce the overall cost of doing this? Sources for used tents and sleeping bags and the like?
You’re basically describing my ideal summer vacation. Take the kids, throw some camping gear in the car, and don’t come back for a month or two, hitting tons of national parks along the way.
As for buying things, a tent is the last thing I would buy used. A leaky tent is basically worthless as the water comes right in, as do bugs – basically everything you want to keep out. The likelihood that a used tent is leaky isn’t 100%, but it is pretty high.
I’d buy almost everything else for camping used without much question. You’ll need a few basic cooking tools (depending on what you want) and sleeping bags, for starters. If you can’t find these items used, shop around a lot before buying new, especially given the time of year. Things like pillows and blankets can just be taken from your home.
Plan on lots of simple meals and hit discount grocers near your camping place for food. When we camp, we mostly eat things like sandwiches and fruit for most meals unless we’ve built a campfire (or have a propane stove or something).
I went to a financial advisor recently and he asked me a ton of questions about our financial situation which is a really good thing. One thing that he asked me threw me for a loop. He wanted to know what my anticipated tax rate at retirement was.
I am not planning on retiring for 20-30 years. When I do retire, I haven’t the faintest idea what tax rates are going to look like. So I shrugged my shoulders and said I didn’t know. He smiled and said we would use today’s tax rates.
How would I know any different than that? This seems like a silly question to me.
I think the advisor was mostly trying to get a sense of what your future views are like. Some people come into meetings like this with strong feelings about what’s going to happen in the financial future of America. For example, some people believe that America is heading toward financial apocalypse, but they have different ideas how that financial apocalypse is going to occur.
Some people expect tax rates to skyrocket in the future. Others expect them to stay low or even go lower. All of that depends on their personal political prognostications.
Of course, it’s all theoretical. No one has any idea what is going to happen with tax rates thirty years down the road. However, some people really believe in their own ideas about the future, to the point where they want those beliefs to alter their future financial planning. The advisor was mostly trying to get a sense of whether or not you had any of those strong feelings so he could incorporate them into his planning. It’s hard to say how much impact such viewpoints would have, but he was at least considering them. I consider that good from a customer relations standpoint, but it’s really hard to know how much it would have affected his advice.
What is the most important financial thing that a couple should talk about before getting married? I’m going to get married next spring and we have gone through a bunch of books on things that couple should talk about but they are all really light on money stuff. Since money troubles are the source of most marital problems I’d like to do this right.
If you’re asking me, I’d say that the most important conversation about money that you should have is goals and how you’re going to reach them.
For example, where do you want to live in ten years? Do you want to have kids? Do you want to have the same jobs?
When you talk through those goals and make some genuine plans together regarding them, you’re going to naturally bump up upon almost every financial detail you guys really need to discuss.
That’s why goals – and plans for those goals – make for such useful conversations. They bridge into everything.
I am currently somewhat happy at my job. I like the work but the office politics sometimes get old and there are times where it can feel like jobs are at risk. But it could be worse.
I recently got a tentative job offer pending a background check. I have to go through a security screening process that will require at least one day off of work and probably two or three. I cannot get this job unless I pass the security screening, but it appears to be a sure thing if I pass.
I am concerned my current employer will find out about this and that will endanger my position at work. Simply going to the security interview (it’s in another state) could end up leaking back to them.
Suggestions on how to handle this?
If I were in your shoes, the first thing I would do is contact the potential new employer and ask about whether or not this background check would involve contact with your current employer, as that could potentially endanger your current employment.
If they promise no contact, then I’d go forward with the security interview without question. If they don’t give you that promise, you have some serious decisions to make.
If you decide to go through with it even with the understanding that they will probably contact your employer, sit down with your current employer and explain the situation, making it clear that this is a great opportunity for you. Make it clear that you are actually happy at work but that this opportunity – financially and professionally – is something you just can’t skip.
If you’re really valuable at work, you may find that you are rewarded for your value there with an immediate raise. On the other hand, it may strain things. You can never be sure, because the response to news like that depends a lot on the personality of your bosses. They may react well. They may not. You’ll be a better gauge of that than me.
In general is it better to defer taxes until later or not? I know that a lot of financial advice revolves around deferring taxes but why is this such a good idea? Can you explain why it is good to defer taxes?
It is a good idea to defer taxes if you believe you’ll be paying a lower interest rate on those taxes in the future.
Let’s say, right now, you’re in the 25% income tax bracket. That means on at least part of your income, 25% of it goes to the government.
If you manage to find a way to save that money in an account that defers your taxes – such as a 401(k) – that means that you’re able to reduce your taxes by $0.25 for every dollar you put into that account.
However, you’re going to have to pay income taxes when that money comes out of the account, and that money is going to be taxed at the rate of your current bracket or may even bump up into the next one.
Let’s say that when you withdraw, your income tax rate is in the 20% bracket. If that’s the case, you’ll only be paying $0.20 per dollar in taxes, which is better for you than the $0.25 per dollar you would have paid earlier. On the other hand, if your income tax rate is 33%, you’ll be paying $0.33 per dollar in taxes, which is worse for you.
So, in the future when you need to withdraw that money, perhaps your income will be lower than it is now – or maybe it will be higher overall. A lower income likely means a lower tax rate, while a higher one means a higher tax rate.
There’s also political implications. Politicians are going to tinker with the tax rates in the future – that’s practically a given. But will they adjust rates that matter to you upward or downward?
If you think that, overall, your rate will be lower when you retire, then you should defer your taxes for your retirement savings by using a 401(k). That will give you more money overall. If you think that your rate will be higher when you retire, then you should use retirement savings that involves paying taxes now and lowering your taxes later, like a Roth IRA.
I am at my wit’s end with my wife. I do not know how to get her to see the big picture.
Several years ago we came to a “financial bottom” like you and we decided to put me in charge of our finances. I did much like you did and implemented a firm budget with small “allowances” for both of us.
This worked great and helped us pay off our credit cards and our student loans.
The problem is that my wife then decided that we were “in the clear” and started spending more than her budget portion.
One day she will tell me how it is so frustrating that we can’t make it to our big goals like buying a house but the next day she is spending money on her credit card on something unnecessary and then we have to pay off the full balance.
She mostly says things like how it is impossible for us to achieve our big goals but then she doesn’t even try at all to get there.
It’s like she doesn’t understand the connection between the two. She understood the need to spend less when we were under pressure but now that the goal is far off she doesn’t make the connection.
I do not know how to make it clear. Help?
I think the answer is pretty simple. When you were in financial trouble, your financial responses were necessary to maintain your way of life. You needed to do these things or else your life was going to have some strong negative turns to it, turns that your wife didn’t like.
Now that those negative turns are no longer in the picture, there’s no threat. Now, you’re looking at future goals that aren’t nearly as urgent and aren’t nearly as threatening. They probably sound cool to her, but right now she has a choice between many things that sound appealing to her and, at least sometimes, the short term things are winning out overall for her.
In other words, your wife is more motivated by threat avoidance than by positive goals. That’s not a bad thing. It’s just how your wife is motivated.
Now, how can you work with that motivation? I think you need to make it clear that the positive future you’re taking about is inevitable, but then when she makes poor financial decisions, she endangers that positive future.
When there’s $1,000 in extra unplanned spending in a year, for example, it doesn’t allow you to retire at age 50 any more. Maybe retirement will come later, but that positive future is gone and a somewhat less positive future is endangered.
Make it clear that you will retire early at age 55 (or whatever) if there isn’t any extra spending beyond the budget. Extra spending beyond the budget that isn’t carefully planned flat-out pushes back retirement for both of you. When she buys stuff, it means both of you have to work for longer – because that’s exactly how it is.
That’s the approach I would take in this situation, anyway. Good luck.
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.