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. Percentage budgeting and taxes
2. Solar PPA agreements
3. Saving enough for retirement?
4. Security deposit question
5. Rich on paper
6. Financial independence in automated future
7. Mortgage payment to savings account
8. Unused generic products
9. Cheap Halloween costumes
10. October has three pay periods
11. Children’s “dress up” chest
12. Podcast recommendations
One of my splurges each year is paying for the Major League Baseball Gameday Audio each year. For a fairly small fee, you gain access to live streaming of every single Major League Baseball game. There are many days when my working afternoons are spent listening to the audio feeds of afternoon baseball games.
As a lifelong Cubs fan, I often listen to the Cubs very attentively early in the season, wane as they inevitably fall off in the middle parts of the season, and then listen to the playoff teams in September. It’s fairly rare that I get to do both with the Cubs.
Not this year. I haven’t had this much fun with baseball in years. It’s not exactly a secret that the Cubs have been undergoing a massive rebuilding project over the last several years, but I don’t think anyone really expected this year would see a big payoff for that rebuilding. They’re one of the best teams in baseball.
But why do I love baseball so much? Part of it was growing up with the game being a part of my life. I watched and listened to games with my father and my grandfather. In fact, some of my best memories of my grandfather involve watching baseball with him. Because of those many years of watching the game together, I’ve just built up my own love for it.
My grandfather never got to see the Cubs win the World Series. The last time they were even in the Series, my father was a toddler. I can’t tell you how much I hope that they get to play in the World Series before my father passes away, just so I can watch a game or two with him.
I sometimes see guidelines showing the percentage of income people should be contributing toward various things to stay financially healthy. How does a work retirement plan fit into this? Is the employee portion (and/or employer portion) of the contribution to my pension considered part of my retirement savings or is it only the amount I am able to save from my paycheck? And are the percentages based on before-tax or after-tax income, or before or after the pension deductions are taken from my check?
Whenever I look at percentages like that, I’m basing it on my pre-tax income (with one exception, which I’ll mention in a minute). I look at my annual salary before taxes and use that as a baseline to judge things like 401(k) and 403(b) contributions.
The exception to that is Roth contributions, for two reasons. One, you’re always contributing post-tax money to those accounts. Two, you’re going to be receiving post-tax money when you take money out of those accounts.
So, for me, it really depends on the kind of account that you’re contributing to.
Having said that, it is really important to keep in mind that this kind of percentage is a purely “back of the envelope” calculation. When I’m doing it quickly and don’t know all of the details, I compare everything to pre-tax income just to be on the safe side. You are always better off contributing too much to retirement than not enough.
I read your (9/14) article about solar panels with either an option to buy or lease but, what is your opinion of a Power Purchase Agreement (PPA)? There is a company that I have been talking to that offers PPAs but I have never heard of the concept before.
When it comes to solar power, a power purchase agreement (PPA) is an arrangement between you and a solar power company in which they place solar panels on your roof and hook it up to your house’s power supply. After that, you essentially have a second energy bill that comes from them. You don’t have any costs associated with the solar panels up front, but you do usually have some basic fees on your second energy bill akin to the basic fees on your normal energy bill.
Why do this? Usually, the energy costs from the solar bill are much cheaper per kilowatt hour, plus you can feel good that you’re taking action to help our nation towards energy independence.
However, the energy cost savings may or may not add up to enough to actually save you money each month as compared to just using your normal energy company. It depends a lot on your own personal usage, the square footage of your roof, how much of your roof receives direct sunlight, and so on.
Over the long run, it’s usually better to just buy the panels instead of entering into a power purchase agreement, but buying them usually has an up-front cost associated with it.
I am 30 years old and married for 6 years. My wife and I didn’t sign up for our 401(k) plans because we didn’t think we could afford to pay the bills if we did. Now we have realized the “folly” of our ways and signed up for our plans. We both are contributing 10% of our income. Her employer does not match. My employer is adding 5%. Are we saving enough to retire at age 65-70?
Collectively, you’re probably pretty close. I can’t say for sure whether you are because I don’t know your respective salaries.
However, you should both be thinking about your individual outcomes. What would your retirement look like if, say, you were no longer married. Would your individual retirement savings support you?
Based on the percentages you gave, I’d say that you would be safe but that your wife might be lagging a little bit. My suggestion, then, would be for her to bump up her contributions just a little bit more, to, say, 12% or so.
That way, you’ll be in even better shape together and you’ll both be in pretty good shape individually.
I moved into this apartment in 2011 and when I moved in I paid a $750 security deposit. I started tracking my net worth a few months ago and then I remembered this security deposit. Should I add that amount to my assets or wait until I receive the money when I move out in a year or two?
Do not count deposits as an asset of any kind until the moment occurs when you receive that check. As long as it is a “security deposit” in the hands of your landlord, any number of things could happen that would result in that money never being returned to you.
This is true in the future if you pay another security deposit. As painful as it is, count it as a loss on your net worth for now. Then, when you receive it back, count it as a gain and your net worth will bounce upwards that month.
Why do it this way? Getting that money back is far, far from a guarantee. It is also not an asset you can possibly use in any way until you receive the check from your landlord.
Right now, my house is worth about $200,000 and I have about $800,000 stowed away in my 401(k). That makes me a “millionaire” in theory. But it is all on paper. I still live day to day on my normal salary. The problem is since I realized this I feel like I should be a “millionaire” and my drive to buy more stuff has really kicked into overdrive. I’ll tell myself “I am a millionaire! I should be able to buy this!” and sometimes I do. Naturally that isn’t helpful for my finances. I used to have a big buffer in my checking account but it is dwindling but the “millionaire voice” won’t shut off. Suggestions? How do I keep good frugal sense now that I am a “millionaire”?
For me, I’ve kept that drive under control by asking myself questions that are unrelated to my financial standing. I don’t ask myself whether I could afford an item, because most of the time I could afford it if I really wanted to.
Instead, I ask myself things like whether I would actually have time to use and enjoy this item. Do I have time to properly devote to this item given my current life? If the answer is “no,” even if I think I could probably rearrange things to find time, then I don’t buy it.
I also ask myself whether this item is really doing anything new compared to what I already have, and, if so, whether or not just those new features are worth that money. For example, if you’re upgrading from an iPhone 5S to an iPhone 6, what are you gaining that’s worth the hundreds of dollars? It’s not the feature set of the iPhone 6 that you’re buying, but the features of the 6 minus the features of the 5S you already have. It really makes a lot of upgrade purchases look silly.
I also consider my living space. Do I really need to put more stuff in there? Where would I actually put this stuff?
In the end, those non-financial questions do a powerful job of keeping me from spending. It’s not just about the money.
Not sure whether this is a mailbag question or not but I would love your take on this. We live in a world that’s clearly headed toward zero blue collar jobs. One only has to look at things like fully automated warehouses to see it coming and AI and robotics get better every day. Soon you’ll have to have exceptional technical skill and ingenuity to get a job. That means that there will be a lot of people unemployed. What will happen to those people at that point? Won’t society just collapse?
This is a tough question to answer, and my answer is going to run long. I agree with you that we’re heading toward a society where there are virtually no blue collar jobs available and it will only take a few specially-trained people to run a whole warehouse or a whole factory. What happens to those hundreds of people on the warehouse or factory floor?
People envision a lot of outcomes from that situation. Your picture is one of them. Another picture is that a lot of people get involved in purely service sector jobs where they work with customers… but even that’s going to eventually be replaced. Look at airports that can now check you in easily with kiosks. It’s really not that long before entire fast food restaurants are automated in that fashion, with you placing your order at a kiosk and the food being assembled and delivered to you in the back.
I agree with you that probably within fifty years or so, we’re going to be in a situation where there aren’t many blue collar jobs, period. I also agree with you that there simply aren’t going to be enough jobs available, even if you assume that everyone can be trained to do a highly skilled job. Trust me, not everyone is cut out to be a computer programmer or an entrepreneur. Those things take special attributes and personal characteristics that can’t be trained.
So, what do we do then?
The easiest solution is to simply give everyone enough money to live on as a basic income. If a company can suddenly go from employing 500 people in a warehouse to employing just 5 people due to better machinery, suddenly they’re saving the income of 495 people. It’s not unrealistic to expect that such a company could afford higher taxes at that point to help pay for that expense.
But shouldn’t they work for a living? Sure. I don’t see any problem with having someone on basic income do some amount of community service for their basic income. They could do things like clean the roadsides of trash, keep parks mowed, and so on. It’s important to note that there will be a lot of people who are quite willing to work at that point who just don’t have the opportunity to be employed.
Keeping people busy and making sure their needs are met is going to be key to keep them from getting deeply angry and starting a revolution. If you have the attitude that if someone can’t find a job then they should just not eat, you’re going to have hundreds of millions of homeless people, they’re going to be angry at the whole system, and it’s not going to go well.
I think at that point there will be strong financial incentive for people on basic income to not have children, along the lines of receiving a cash bonus if they agree to some form of contraception. It would be far less expensive for society to do things this way. Continued population growth would be disastrous in this kind of situation and so we need to provide incentives for people to freely choose not to have more children.
All of this stuff is in the realm of science fiction at that point. It’s impossible to say for sure what the future holds. That’s just what I envision for the future.
My husband and I have decided to make double payments on our mortgage in order to pay it off sooner. It’s a 30 year mortgage and we read that double payments mean that we’ll pay it off in nine years, which sounds great to us.
My father in law says that’s a terrible idea and that we should instead make our extra payment to a savings account. That way if we are hit with an emergency we will have money on hand. If we put those extra payments toward our house the only way we can get at that money is through another mortgage. I am not sure but I think this method will take longer to pay off our house.
Which route is smarter?
If you don’t have an emergency fund, your father-in-law is correct that you should have one. I would try to have at least a couple months of living expenses in a savings account somewhere, and if you don’t have that, you should make your “extra” mortgage payment into a savings account until you do have it.
When you do have a big, healthy emergency fund, you should switch that extra mortage payment toward your actual mortgage. After a certain point, extra money in an emergency fund ceases to be helpful and your money is better off elsewhere. A mortgage is a completely reasonable place to put it.
If you’re hit with emergencies that devour more than multiple months of living expenses, it’s probably going to be impacting your living situation regardless of how much you have saved up.
We have been trying all of the store brands at our local grocery store and found that most of them are great! The problem is that we have found one or two that we hate. We ended up buying other versions of that product and that leaves us with some stuff in the cupboard that we’re just not going to use like a package of toilet paper with two rolls removed. What can a person do with that stuff? We asked a food pantry if they wanted it and they said they only want sealed stuff.
Honestly, I’d put it out by the curb on a cheap table with a sign that says “Everything on this table is free for anyone who wants it.” It’s likely that your table will be empty within an hour and then you don’t have to worry about it.
Of course, I wouldn’t do that until I had exercised other potential uses for the stuff. I don’t know what kinds of items you have on hand, but there’s usually a second use for everything. Look around for ideas online if you don’t have any yourself.
For example, that rough toilet paper works great for things like cleaning up bugs. If you kill a spider or something, several sheets of that generic rough toilet paper is great for getting rid of the remains. Just keep it in a place where you’ll remember it.
Do you have any suggestions for cheap Halloween costumes for kids? The cheap ones at the store just look awful.
Just make a costume yourself! There are countless ideas out there for simple homebrewed Halloween costumes that require very little additional materials.
I’ll give you my favorite example. Get some white makeup or paint that can go on skin, then have your child dress up in their best clothes (like a suit or a dress) and paint their face and exposed hands a pale white. They’ll look extremely creepy, making for a wonderful Halloween effect. It works even better if you make their lips bright red and maybe use a bit of eyeliner to make their eyes look dark.
Need more ideas? Here’s a giant list of fairly quick and inexpensive Halloween costumes. My youngest son is thinking of being a container of Easy Mac this year.
Several months ago I started a job where I get paid every two weeks. Because of that, I started a bill paying routine where I would pay certain bills with the first paycheck in a month and the rest of the bills with the other paycheck. In October I’m getting paid ont he 2nd, 16th, and 30th. It’s the first time I’ve been paid three times in a month. How should I handle this? Should I just bank that third paycheck minus a little for living expenses like food?
Yes, you should absolutely bank that third paycheck. During the two years or so after my financial turnaround before I moved to working on The Simple Dollar full time, I worked at a place that paid every two weeks and, like you, I moved to handling our bills with just two paychecks per month. That meant that twice a year I had an “extra” paycheck.
What did I do with it? Once, it filled our emergency fund. Another time, it paid for moving expenses. Another time, it turned into a big extra payment on our mortgage (which we’ve long since paid off). I don’t think we ever used it for “fun” and we never relied on it for our regular bills.
So, yes, bank it. Make an emergency fund if you don’t have one. If you do, maybe use it to fund a Roth IRA or else use it to save for your next car or a home down payment.
I just wanted to share a really good frugal idea for clothes that you might otherwise get rid of. Save some of them especially the interesting and unusual ones and put them in a tub somewhere. If you ever have children, a bunch of interesting clothes makes for a great “dress-up” tub. I pull mine out for my grandchildren when they come to visit and seeing my granddaughters dress up in some of my crazy old things is just as fun for me as it is for them.
I think this is a really good idea if you have children in your home with any regularity. Our children have a giant dress-up tub in the basement that they used to play with all the time (they’re starting to get a touch old for playing “dress up” any more, which is honestly a bit bittersweet).
It’s a great place to put any and all interesting clothes that you no longer want. Your old t-shirts would probably be an odd addition, but things like old hats, old suits, and old dresses are perfect for a container like this.
I’ve found that between the ages of about three and seven, our children absolutely loved the dress-up tub, which at our house contained older Halloween costume bits, some interesting random pieces of clothing, and lots of costume add-ons like jewelry.
What podcasts do you listen to these days? Always looking for new ones to listen to at work! It’s amazing how many great audio programs are available for free!
Here are the ones I listen to with regularity. Many of these are actually rebroadcasts of NPR programs.
This American Life is an hourlong weekly show produced by WBEZ and hosted by Ira Glass. Each week focuses on a specific topic – faith, fear, love, a specific event, and so on – and is mostly journalistic nonfiction, but also includes things like essays, memoirs, field recordings, short fiction, and found footage. You never know for sure what you’ll get with each episode.
Serial is a spinoff of This American Life hosted by Sarah Koenig. This podcast is released in “seasons,” of which a bunch of episodes focus on one topic to tell one larger continuous story. The first season was essentially an in-depth report on a crazy murder case in Baltimore that cast a lot of doubt on the verdict that the jury originally made in the case and is worth listening to from the start.
Planet Money is a short finance and economics podcast, about fifteen minutes in length, that pops up about twice a week. It’s hosted by a rotating cast of people, but it shines because it takes one specific financial issue and digs in deep. My favorite ones that they’ve done were when they dug into the details of the housing crisis in the late ’00’s, but almost every episode has been great.
TED Radio Hour is a weekly show hosted by Guy Raz that, much like This American Life, focuses on a specific theme each week, like happiness or money. That theme is explored mostly through short talks given by a variety of people who usually have interesting insights into some angle on the theme. It’s always thought-provoking.
The Moth is a fascinating spoken word podcast where people simply get up on stage and tell stories about their lives. Almost all of the stories in this podcast are about ordinary people and some of the exceptional challenges and circumstances they’ve found themselves in.
Radiolab is hosted by Robert Krulwich and Jad Abumrad. Each episode, they dig into some sort of question that a curious mind might ask, like whether or not it was possible for horns to produce enough sound to knock down the walls of Jericho, or why the periodic table is laid out like it is, or what is actually the best way to protect an endangered species. They hook you with the question in the first minute and then answer it in an entertaining fashion throughout the episode.
Good Fortune is a podcast hosted by Matt Van Natta about stoicism and what it means to be human. I try lots of different podcasts, listening for an episode or two, and dropping them. This one has made me think a lot and has stuck around since almost the beginning.
The rest are related to specific hobbies and interests of mine, which may or may not overlap your own.
The Pen Addict is hosted by Brad Dowdy and Myke Hurley and focuses on pens and other writing instruments, the paper upon which the writing happens, and different ideas and methods for organizing written thoughts.
Sword and Laser is hosted by Veronica Belmont and Tom Merritt and focuses on science fiction and fantasy books and, occasionally, short stories and other media.
The Dice Tower is hosted by Tom Vasel and Eric Summerer and focuses on board games of all kinds, going quite deep into the emerging market of designer board games.
Basic Brewing Radio is hosted by James Spencer and focuses on the art of home brewing beer. Most of the episodes are in interview form, where home brewers and other people related to the hobby appear.
Happy Jacks RPG Podcast is hosted by Stu Venable and a rotating array of co-hosts and focuses on tabletop role playing games, especially on how to be a better player and better game master.
These podcasts make up most of the audio I listen to each week. Hopefully you can find something in there to enjoy!
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.