Questions About Insulation, Meal Tickets, Temptations, Kitchen Startup, 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. Two incomes, one strategy
2. Interesting tip about department stores
3. Insulation issues in apartment
4. “Debt up to our eyeballs”
5. Sandwich press
6. Nearby temptations
7. Accounting for selling things
8. Planners, paper or otherwise
9. The “mega-backdoor” Roth
10. Investors competing with professionals
11. “Meal ticket” promotion at restaurant
12. $100 to start a kitchen
13. Retirement versus down payment savings
14. Independent contractor and taxes
15. Best places to live?

As with many of you, I’m looking forward to a holiday later this week spent at home with some of my closest family and friends. It’s going to be great. I hope your Thanksgiving celebration is a great one, too.

Q1: Two income strategy

My wife and I had a question, actually… more a request for guidance.

Since we have been together, one of us was always in school so we always budgeted off of 1 income, we did quite well too! Our question may seem silly but we now are both fully employed and wanted to know what would be the best path to follow now that we have more than double the income. We are going from making about 40k to roughly 90-95k.
– Kevin

The smartest thing the two of you can do is to take one of your paychecks and bank the whole thing. Live off of just one of your paychecks.

Put the other one aside to do things like get rid of any and all debt you have (I’m guessing you have some student loan debt, at least), then start socking it away for big things in the future – like a house or seed money for a small business or income support if one of you chooses to be a stay-at-home parent.

This is what Sarah and I are doing. My income – at least the after-tax portion – is going straight into investments right now. We live, day to day, off of her income. It works well and our investments are going up at a very nice rate.

Q2: Interesting tip about department stores

So a friend of mine is helping to build a new Target in our area and he told me several interesting things about how they’re built. My favorite one is that the stores like to alternate how the rows are laid out, with some going one way and some going another, so that it feels like a maze.

This kinda made me mad because it’s like they are trapping you in there to buy stuff. Is there some sort of smart way to avoid this that I haven’t thought of?
– Adam

I hadn’t ever really thought of it that way, but that makes a lot of sense. They want you to spend as much time as possible wandering up and down aisles to find stuff, so arranging them in patterns that force you to go up and down aisles makes at least some sense.

Honestly, I’ve been pretty frustrated in department stores before while wandering through their “maze” looking for stuff without anyone around to help. I have actually left without buying items many times.

In the last few months, I’ve started using the store’s smartphone app to help with this. Most of them include the floor layout of the store and if you type in an item, it’ll show you a big dot on the map where you can find that item. So I’ll just head straight to the item I want with minimal distraction.

Q3: Insulation issues in apartment

We started renting an apartment this summer and during the summer it seemed great. We left the windows open a lot and enjoyed a great breeze and some mild summer temps.

In the last few weeks the real problem has shown itself. I don’t think there’s any insulation in the walls.

We have baseboard heaters and they run almost constantly and it’s not even close to the peak of winter yet. Even now, the kitchen is sometimes way colder than the rest of the apartment. All of this heat is just leaving through the walls.

What can I do?
– Kerry

You can complain to the landlord, but he/she is probably not going to do anything. Beyond the usual advice of getting lots of blankets to cover up with, there are a few things you can still do.

One, check for drafts. Is there a bit of wind flowing in our out of your apartment through cracks? If so, try to get your landlord to fix it or get some caulk to fill those cracks yourself.

Another strategy is to hang some blankets on the walls. Seriously. Just tack them up there as securely as you can to cover as much wall space as possible. This is a great use of extra blankets.

I would also put some sort of block under your front door. There are a lot of options here. You could ask your employer to get a door sweep or get a draft blocker pillow to place there.

Those are the biggest things you can do yourself. It does seem like the building is inadequately insulated, though.

Q4: “Debt up to our eyeballs”

Every day I wake up stressing about finances and every night I go to bed feeling the same way. My husband doesn’t worry as much as I do as he has always taken the mindset “it will work out” – I’ve never been that way.

Our debt looks like this:

Mortgage – $36,655.72 @ 4.250 interest (we started off paying more than the minimum on this however now we just pay the minimum which is $300.97 a month)
HELOC – $14,067.04 @ 3.250 interest (the bill currently is $160 a month however we pay $300-$350 a month)
Discover – $300 – we pay this off in full every month
Lowes – $300 – we also pay this off in full every month
American Express – $4,170.94 – it’s currently at 0% interest until the end of April. I am in constant fear that we aren’t going to get it paid off by then and will then need to pay interest which would be approximately 17%)

Monthly Bills –
Electric averages about $90 a month throughout the year
Internet – $54.95 a month
Phone – $120 a month (we are on a family plan with my parents and this is with an employee discount)
Gas utility – about $25 a month
Water/Trash – $58 a month
Fuel – $80-120 a month
Food – We try to budget for $300-$400 a month however, lately we have been super bad about going out to eat
Savings – $420 – this is a savings solely for paying for yearly expenses (property taxes, insurance, etc)
Income – My husband works full time and will sometimes get overtime during the fall season – however on average he brings home $2200 a month.

A little bit about us and our debt. It’s just my husband and our three dogs. When we bought our house a few years ago we originally paid for it in cash thanks to some investments and inheritance my husband had – we did the same with our vehicle. However, after being married we realized we would be unable to have children without medical help – so we took out a mortgage on our house. We spent over $30k on fertility treatments and unfortunately while they succeeded in us conceiving I was unable to stay pregnant every time.

Before I married my husband I lived my life in severe debt I live in constant fear of going back to that and I’m just not sure how to get out of the debt we are in. I have thought about trying to get a job to contribute however I have been out of the work force for over five years, have no college degree and suffer from PTSD , anxiety and depression. My husband is happy with me staying home and for the most part so am I – I just thought I would be a stay at home mom and that didn’t work out so I feel a bit rudderless and like I’m drifting through my life with no purpose.

I feel like we are in debt up to our eyeballs, that we just don’t have enough income to justify our expenses but I’m not sure what else I could cut or how else I could bring in some income.
– Marilyn

Your budget is full of things that can be cut. It just depends on what your priorities are.

The phone service for the two of you is $120 a month. You can get phone service for half of that if you shop around, even with data. Your home internet is $55 a month – if you have some data on your phone, you don’t need that. You mentioned eating out a lot – just stop all of it for a while until things are under control again.

Those are just the easy things. You may want to consider selling your home and moving to something smaller.

Q5: Sandwich press

Perhaps you can help us with a debate we’re having at home. My husband has been obsessed with buying one of those sandwich presses for a while. He thinks it’s something we should “invest” in. I personally think it’s a waste of money and that a skillet makes a fine grilled cheese sandwich and that if he wants one he should take it out of his account (we each have small checking accounts that we can use however we want… about 90% of our money goes into shared checking with the other 10% split between our individual accounts). Is a sandwich press really worthwhile?
– Ainsley

You’re correct in stating that you can make a pretty good hot sandwich with just a skillet. I actually like the “double skillet” method where you put a second skillet on top of the sandwich as it cooks to weigh it down, as I find this makes a crispier crust.

Having said that, a sandwich press does a really good job of doing this. It’s designed to make these sandwiches. It’s not necessary by any stretch of the imagination, but it can be useful if you make a lot of sandwiches.

To me, this sandwich press idea screams “Christmas gift.” It’s something your husband will enjoy and actually use, and by giving it as a gift, you enable him to have an item he actually wants without tapping his personal money (or the shared money) to get it.

Q6: Nearby temptations

How do you handle nearby temptations like restaurants? I live less than a quarter mile from a Chipotle and a Panera Bread. I can literally walk to either of them in about two minutes. In the evening when I’m worn out after a work day I am very tempted to just walk to one of those places for supper. It gets expensive quick because if I eat at either place every day it adds up to hundreds a month just for dinner. What can I do to minimize that temptation?
– Charles

My solution is to just not live anywhere close to any temptations like that. I can reach a small-town grocery store if I walk a little more than a mile and I can reach a Subway if I walk a little further than that. Neither one is tempting enough to get me to take that walk.

Of course, that probably doesn’t really work for you. Honestly, the solution I’d use in your situation is to stuff my freezer with homemade convenience foods. For example, if I loved burritos, I’d just make a bunch of homemade ones and stow them in the freezer.

In the end, though, it’s just going to take some self-control. There’s no way around it.

Q7: Accounting for selling things

In Mint I currently have three cars that I own that are all a part of my net worth calculation along with my liquid assets and house (I’m sure it works the same in YNAB or any other software). When I sell one of these cars, I will remove the car from my list of assets and count the proceeds of the sale as “Income” that contributes to my cash flow for the current month. This will drive how much I put into various savings and investments for the month.

This makes sense in my head but part of me feels like I’m double-dipping. Since I already owned the car can I count the proceeds as income? Transforming my car from, say, $5,000 worth of metal to $5,000 worth of green paper doesn’t really seem like income to me. But at the same time I would think it all evens out in the end as long as I accurately accounted for my purchase of the vehicle in the first place. This question kind of applies to smaller items that you would sell on Craigslist and eBay, as well as selling stocks and bonds. What is income and what is just transferring some asset from one form (stock certificate) to another (cash)?
– Daniel

The key thing to remember is even though your income is getting a $5,000 boost that month, your net worth is also dropping by $5,000 at the same time because you no longer have that $5,000 asset. It’s gone. Your net worth stays at zero.

For the smaller items, the best way to think of that is that the original money you spent on those items effectively “disappeared” from your budget, much like a food purchase. Your net worth went down when you bought the item and then when you sold it, your net worth went up again. If you were to track every little purchase in this way, it would work much like the car does – it’s a tiny illiquid asset.

Honestly, I don’t view any of those as income. They’re all just transfers of your material wealth from one form to another. If you sell an item, your net worth goes down by the value of the item, then goes up by the amount of cash you received for it, and they (theoretically) balance out. It’s only because we don’t track the small items we own that our net worth seems to go up when we sell little items.

Q8: Planners, paper or otherwise

When keeping track of appointments and future plans, do you use a paper planner? What kind?
– Mary

I actually don’t use a paper planner for those kinds of things. I use a mix of Google Calendar and Evernote for all of the functions of a typical paper planner.

I do pick up a new planner each year, but I use it more like a journal. I keep a paper journal that functions mostly like a mix of a gratitude journal and a simple record of what happened on specific days. I find that very useful when looking back.

I usually just use a Moleskine daily planner for this. I often receive one as a Christmas gift, which works very well for that kind of thing.

Q9: The “mega backdoor” Roth

What do you think of this strategy:

http://www.madfientist.com/after-tax-contributions/

Seems like a good idea for a big retirement boost!
– Jonathan

This is a very good analysis of the way tax rules happen to work right now regarding shuffling contributions around from account to account. For a good handful of people, this could be extremely useful.

The only reason I don’t typically delve into these areas is because most of these strategies dissolve within a year or two, meaning that by the time you actually got the strategy set up and planned ahead to really make it work, the loophole may or may not even be there at all. Plus, it usually requires a lot of upfront cash to really make it work.

I think that, unless you’re sitting on a pile of cash, you’re better off finding more income and more money to put into the account to begin with. That will never fail you – it’s a timeless principle, and it’s those timeless ones that really interest me.

There are certainly some people helped by strategies like this, but they’re usually money managers for very wealthy people who have significant assets and can really be helped with these kinds of shifts.

Q10: Investors competing with professionals

I just had a comment about your statement about The Bogleheads’ Guide to Investing Book, “In general, the book’s philosophy is that casual investors can’t compete with the professionals.”

I believe the point was not that investors can’t compete with professionals, but that there is no evidence that professionals can outperform the market consistently in lieu of high fees and extra tax consequence. Most extra return can be attributed to luck or additional risk taken by certain investments(i.e. small cap value, REITs,emerging markets, etc.).
– Mark

Professionals do outperform the market. One only has to look at the performance of many of the top hedge funds to do that.

The thing is that those hedge funds have a lot of money to work with, enough to corner aspects of various markets and to outright buy businesses if it makes sense. They have so much money that they can manipulate things on a broad scale.

You and I can’t really do that.

I agree with you that most ordinary mutual fund managers can’t beat the market consistently for the reasons you name.

Q11: “Meal ticket” promotion at restaurant

There’s a restaurant in my town that is running a monthly Meal Ticket promotion. Basically, you buy a pass for $99 and then you can eat there as often as you want all month long.

According to my math, that’s actually a pretty frugal deal. Assuming I eat all of my meals there and don’t eat at home, that’s a month without groceries or eating out anywhere else.

What are your thoughts on the Meal Ticket?
– Dan

It depends on a number of things.

First, does the restaurant have reasonable hours and is the location reasonably close to your home? Is it always open when you would normally eat meals? Can you walk there from your home without any trouble? Would you want to walk or drive there, rain or shine?

That touches on the second set of questions. Is this a place you’d want to eat ninety meals at over the next thirty days? Wouldn’t you just get sick of the place after a while? Maybe, maybe not. For me, it would depend a lot on the quality and variety of the menu (and the healthiness of it, too).

As soon as you start making “exceptions” to this – having people over to your home for meals, just not wanting to go over there, not being able to make it, and so on – the value proposition of that meal ticket drops – and drops fast.

I would consider this “meal ticket” but not as a substitute for all meals. Instead, I’d figure out what I spend on an average meal at home – let’s say, $5 – and then ask myself whether I would eat there 20 times in a month (since $5 times 20 is $100, the cost of the “meal ticket”). If it’s a yes, then I’d buy that ticket. If it’s a no – and I can’t imagine a restaurant on earth that I’d want to eat at twenty times a month – then I’d pass.

Q12: $100 to start a kitchen

My daughter is moving into an apartment for the first time in January. Since she has nothing to set up house, I am going to give her a bunch of basic items she’ll need for Christmas. I am going to focus on the kitchen stuff, since she does have clothes and a bed. How would you spend $100 to set up a kitchen from scratch?
– Sandra

I would go down to the local thrift stores, for starters, and get as much as I could from there. If she needs everything, she’s better off starting on the very low end with each item and upgrading from there. I am assuming the kitchen has major appliances like a stove, a refrigerator, a freezer, and a microwave oven.

The most important thing people need in their kitchen are forks, spoons, plates, and bowls. Without them, it’s very difficult to eat anything at home, let alone prep it.

The basic things you need for prepping food are a large mixing bowl, a good budget chef’s knife (I’d suggest this one if there isn’t one at the thrift store), a paring knife, a cutting board, a cast iron skillet (like this one), a simple low-end pot (for things like boiling pasta), a simple sauce pan, and a slow cooker. Again, I’d seek these things out at a thrift store rather than buying new, but buy new if you have to.

You will likely get all of this stuff only if you’re lucky. If I were to buy one thing for her after the plates, bowls, forks, and spoons, I’d get a chef’s knife and a cutting board.

If I were you, I’d talk to the other people in your family who may give her gifts and spread out some of these items amongst them.

Q13: Retirement versus down payment savings

I’m 33. My take home pay is $3400/month. My employer puts an extra 10% of my gross salary (about 15% of my take home pay. no employee contribution required to get this which is pretty awesome) in a 403b in which I now have 31k (not much since I spent many years in school before having a real job with benefits, and a better understanding of personal finance ….). I have an emergency fund with one full year of living expenses (I’m very risk adverse …). I have 10k saved up for a downpayment (my goal is 40k), in which I put $900/month. I’m also starting to save up to potentially go back to school for one year (tuition costs : 15k), I currently have about 2k saved up for that. I put about $500/month in this account. and I have zero debt. I currently do not contribute any extra money to my retirement account. I figure I will open a Roth IRA when I’m done saving up for my down payment, max it out, and possibly invest the rest. I’d like to be able to buy a house sooner rather than later but even though I have had a healthy percentage of my salary going to retirement for the past 5 years, my total retirement savings are pretty low. Would you recommend I save more for retirement and less aggressively for my down payment ?
– Robert

If you’re 33 with $31k in retirement savings and you’re putting away at least 10% of your income into retirement (which you are) and you have a full emergency fund like you describe, you are doing very well. I would not stress out about contributing more to retirement than you already are unless you have a strong goal of retiring early.

For you, the real question would be where home ownership ranks in importance compared to retiring early. If home ownership ranks first, then contribute more to your down payment fund and stick with retirement savings in the 10% to 15% range. If early retirement ranks first, then focus on every dime of retirement savings that you can muster.

There isn’t a right answer here. It depends on your personal goals and what you want out of life.

Q14: Independent contractor and taxes

I recently started working as an independent contractor for a Fortune 500 company. They send me paychecks without any money taken out for taxes or Social Security or anything. I’m assuming I’m supposed to pay this. What do I do?
– Jared

Since you’re not having any taxes taken out of your pay, you need to start making quarterly estimated tax payments. The IRS has a great guide for this. Speaking from experience, it’s pretty easy, and even if you goof it up a little, the penalty is pretty small… as long as you pay all taxes in full by April 15 of the following year.

Having said that, you need some financial discipline here. You’re going to eventually be responsible for all of those taxes and it’s going to eat up a notable percentage of your pay – up to 45%, depending on how much you make and where you live. You need to be accounting for this.

The easiest way to do it is to simply divide each check in half when you receive it. Put half into a savings account for taxes and live off the other half. File your quarterly taxes every year, then your annual taxes early in the following year. When everything is paid, consider the remains in the account to be your “tax return.”

Q15: Best places to live?

Any thoughts on this article from The Atlantic? http://www.theatlantic.com/business/archive/2014/11/why-its-so-hard-for-millennials-to-figure-out-where-to-live/382929/

Maybe you have been right about Iowa all along?
– Stephen

The upper Midwest, which I define as Iowa, Wisconsin, Minnesota, and the Dakotas, is a region of the country I’m proud to live in. Those states tend to score well on just about every quality of living metric out there.

My favorite part of that map was the economic opportunity chart, which depicts the upper Midwest as a sea of near-white. In that chart, white is good and red is bad in terms of economic opportunity.

People on the coasts can think of the upper Midwest as flyover country all they want. The numbers don’t lie – it’s a great place to live and better than the coasts by an awful lot of metrics.

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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