Questions About Japan, Notebooks, Credit Counseling, Roth IRAs, 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. Short term pay boost
2. Taking advantage of the dollar
3. The value of credit counseling
4. Thoughts on Todoist
5. When NOT to use Roth?
6. Retire where it’s cheap?
7. Going carless
8. I can pay it off!
9. Always afraid
10. Which debt first?
11. 7% return a mistake
12. Pocket notebook recommendations
13. Great “cheap” quote
14. Writing in books
15. Family game recommendations

This weekend, we spent many, many hours preparing for the holidays around our home. We took advantage of the fine weather on Saturday to hang up lights outside (and do a final few winter preparation tasks), and spent much of Sunday decorating the interior of our home for the holidays. We also did a lot of online Christmas shopping during the evenings.

I really like the transformation that our home undergoes this time of year. The act of decorating seems to wake up a holiday spirit in all of us. We end up singing holiday songs, doing lots of family activities like making paper snowflakes, and just spending tons of time doing things together instead of engaging in individual activities.

This is clearly one of the things I love about this time of the year. It helps balance the frustrating part for me, which is the incredibly short days. I don’t like the time of the year when it gets light at 7:15 AM, gets dark at 5 PM, and is often grey all day. The holidays help to balance that out and by the time the season is over the days are slowly getting longer again.

Q1: Short term pay boost

I just signed a contract through the end of 2015 that pays me about $12,000 a month as a consultant. It is by far the most I have ever earned per month and 2015 will be far and away my highest income year ever.

I am smart enough to realize that at the end of 2015 my finances are going to go back to “normal.” I am not going to be making $144,000 a year for the rest of my life so I can’t start acting as if I am.

So what can I do here? What’s the smart move to make in 2015 given that I know my salary will drop at year’s end?
– Amanda

If I were you, I would strive to live on what you lived on before this big contract. I’d adopt your annual expenses for the year prior to this and live on that.

What will happen is that you’ll have a much bigger tax bill, but you’ll also have a lot of leftover income. Use every dime of that income to shore up your financial life. If you have debts, decimate them. If you don’t have an emergency fund, build one. If you haven’t started saving for retirement yet, start saving for retirement. If you have home or car improvements that need to happen, make them happen – and pay cash. If there are some energy efficiency things you can do (like installing a bunch of LED light bulbs), do it!

Basically, you want to move to a situation where your monthly bills are as low as possible when this contract ends so that when you return to a lower true income level, you have much more breathing room than before.

You have a chance here to make the next ten years (or more) of your life easier than they otherwise would be. Don’t let that opportunity pass.

Q2: Taking advantage of the dollar

Over the last year or so, the dollar has been going up and up compared to the other major currencies around the world. Is there any way to take advantage of this? I know that investing in currencies is probably not the most financially prudent thing to do, but I’m willing to invest money that I’m not paranoid about losing.
– Jeffrey

It depends on what you believe will happen in the future. Will other currencies rebound against the dollar (like the euro, the pound, or the yuan)? If you think that will happen, you could simply buy a lot of that currency.

A better move might be to invest in the stock of companies in industries that are aided by a strong dollar, like airlines, homebuilders, and department stores. Those companies generally earn their revenue domestically, which means that the true value of their revenue is going up.

What am I doing? Honestly, I’m not doing anything at all. I tend not to invest based on short-term ups and downs in any market.

Q3: The value of credit counseling

I just wanted to advise your readers that credit counseling isn’t really very useful and doesn’t provide anything you can’t do yourself. All they do is make up a debt repayment plan for you and contact your creditors on your behalf looking for rate reductions. The most they can offer beyond what you already have is the willingness to actually make the calls.
– Erik

I agree with you that most people can duplicate the services offered by credit counselors on their own.

The problem is that doing so requires a great deal of personal initiative and the ability to make strong plans. People who bury themselves in debt are sometimes lacking those skills and function better when someone comes in and gives them a clear plan to follow.

That’s what credit counseling services provide. They’re much like a life coach – they don’t provide anything that you can’t do yourself, but they do bring in a structure and motivation for people who might not otherwise have it.

For some, that’s valuable. For others, that’s useless.

Q4: Thoughts on Todoist

Have you tried using Todoist to manage your to-do lists? It seems to really match up well with your life pyramid idea. I’ve been using it and it seems just right to me, with other list managers being way too complicated or lacking in features.
– Kevin

Todoist is an excellent to-do list manager. The best thing it has going for it is that it seems to work well on basically every platform. I tried it on several different computers and tablets and phones and it was smooth on all of them, something I can’t really say about other task managers. Plus, the free version is pretty good on its own (like many such tools today, it’s “freemium,” meaning there’s an upgraded versions with added features).

The truth is that there are a lot of task management tools out there. Most of them are quite good, but they’ve all got a slightly different focus, as if they were designed with somewhat different people in mind.

I used Remember the Milk for many years and still feel like it’s the best electronic to-do list manager for me. I alternate between using it and using a paper-based to-do list.

Q5: When NOT to use Roth?

Assuming you’re not getting contributions from your employer, is there ever a reason NOT to use a Roth instead of a 401(k)?
– Amy

Sure, there are some reasons. If you earn too much, you’re not eligible for a Roth IRA or Roth 401(k), for one. You might also prefer a non-Roth if you’re very close to that cap because you’d rather avoid the 33% taxes you’re paying right now and believe you’d be paying less in retirement.

Aside from those things, a Roth IRA (or Roth 401(k) if it’s available) is probably the best choice for most people. You have more control over how you invest, plus you won’t pay any taxes on the money coming out of that account at retirement time.

It is virtually never a bad idea to open a Roth IRA for yourself and start contributing (assuming you’re eligible for one).

Q6: Retire where it’s cheap?

I recently sold my small business for about $2.5 million. I am 41 years old. Couldn’t I just invest this money into something that returns a good dividend and then just retire to a cheap part of the United States now? Most of my hobbies don’t really require a metro area nearby and some of them actually work better in the country (like going on hikes and so on). Why not just move to an area where the cost of living is dirt cheap and live out my days enjoying my hobbies?
– Stephen

Generally, it’s believed that, if you invest well, you can take out 4% of your investment per year and live on it basically in perpetuity. If you have $2.5 million to invest, that means you can take out $100,000 of it each year to live on. That’s quite healthy, I would say.

If you’re willing to move to an inexpensive part of the United States, you can easily live on this amount. If I were you, I’d try to live on half of that – withdrawing only $50,000 a year – and keeping the rest invested.

You can probably find a broad-based stock investment that returns more than 2% in dividends a year. For example, if you put everything into the Vanguard Total Stock Market Index, it would yield 1.66% per year – about $33,000 for you – and still keep growing at a pretty healthy rate. Vanguard’s High Dividend Yield Fund yields about 2.75% per year, which would earn about $69,000 per year. Qualified dividends are generally taxed at a 15% rate on incomes of that level, so you’d just lose 15% to federal income taxes. That’s definitely an amount that you could healthily live on in a low cost of living part of the United States.

Q7: Going carless

After my divorce earlier this year, I moved into a small apartment in [a Chicago suburb]. There is a light rail station about half a mile from my house and both Uber and Lyft are pretty quick around here if I’m really in a pinch. I still have my car but I haven’t used it in several weeks. Is there any reason not to go carless here and get rid of the expense of insurance and registration?
– Dillon

If you’ve found that you can do it for several weeks, you’re probably pretty safe selling off the car. Even if you do occasionally find a need for a car, services like Uber and Lyft can help you out.

Even if you need to rent once or twice a year, it’s still cheaper than hanging onto that car you have and paying insurance and registration on it.

If I were you, I’d hang onto the car through the holiday season and see if you have any use for it. If the new year comes around and you still haven’t touched it, I’d feel fine ending insurance and registration on it and selling it off.

Q8: I can pay it off!

My younger sister is in a really precarious financial position. She and her husband have four young children. They both make a good salary, but recently I found out that they carry a ton of credit card debt. On the order of $30,000. They’re making minimum monthly payments that total in the thousands.

I figured that they incurred all that debt during the period when they were looking for jobs, but it turns out that they have mostly charged that up since then.

Their reasoning is that they can pay it off whenever they want so why worry about it? She actually said that the debt could be gone in just a few months so it’s not really a problem.

Shouldn’t they be trying to eliminate that debt? With four young children at home I would have a stroke with $30,000 in credit card debt.
– Travis

This is a logic I’ve heard from a lot of high income earners who believe their income will last forever. Because their income is so high, they see their debts as small and easy to pay off and they “overlook” the fact that they’re losing hundreds a month in interest to the banks.

Regardless of your income level, that’s a poor move. There’s never a good reason to just lose fistfuls of cash to the banks in interest. They should obviously be paying these cards off.

However, it’s probably not your place to say anything here. Your sister is an adult, as is her husband, and they have the right to make their own financial decisions. As long as there’s no financial connection to you, let them do whatever they want.

Q9: Always afraid

Before I started turning my financial situation around, I was constantly afraid of something upsetting my bad financial state and putting me out on the street. I would envision these terrible scenarios and they would literally keep me up at night.

As I turned things around it was better for a while but now I have no debts and some savings and I envision that money just disappearing or getting stolen or something. I worry about identity theft or a lawsuit or a medical problem taking all of it from me.

I just want to not worry.
– Alison

There is always a phenomenon of new problems introducing themselves when you improve yourself financially. Generally, the problems are from higher levels on the hierarchy of needs – you start worrying about self-actualization and human relationships rather than having food on the table.

However, if worry is still keeping you up at night, you may want to speak to your doctor about it. I can understand this level of worry if you’re worried about feeding your child on an low income, but if you’re in a financially secure place, this should be a minor worry.

Another step you can take is to talk to your bank about their identity theft procedures. Virtually all banks have robust policies for handling this kind of thing. If you know what that procedure is and know that thieves really can’t come and take your money, it makes things a lot easier.

Q10: Which debt first?

I have decided to get rid of my credit card debts. I currently have two debts. I have one debt that is $2,700 and is at 19.9% interest. I have another debt that is $4,000 that is currently on a zero percent balance transfer but will jump to 24.9% when it ends in March. Which debt should I pay down first?
– Kevin

The first thing I’d do is try to reduce the balance on the 19.9% card, either through another balance transfer or through simply requesting a rate reduction. I’d also look to transfer that $4,000 debt to a different balance transfer offer so that you have more time to pay it off.

Assuming that you can’t actually alter this situation, it really depends on how fast you’re able to pay down these debts. Are you making $50 a month extra payments? If so, you should be targeting the 24.9% debt right now. Are you making $1,000 a month extra payments? If so, you should be targeting the 19.9% debt right now.

Basically, the question is whether or not you’d have the 19.9% debt mostly paid off by March. If you would, then it’s better to get rid of that one first. If you’re only able to make a small dent by then, you’re better off targeting the 24.9% debt. If you’re not sure, target the 24.9% debt.

Q11: 7% return a mistake

I think that whenever you quote a 7% annual return from the stock market, you are making a mistake. I am from Japan and our stock market has had a -3.4% annual return on average since 1989. Why would you just assume that the U.S. stock market would keep going up at that rate?
– Sarah

I stick to the 7% number because that’s Warren Buffett’s take on the stock market over the long term and he backs it up with logic that makes sense to me.

Japan’s stock market in 1989 was also fueled by an incredible amount of speculation, driving it to a huge and unrealistic artificial peak. It’s equivalent to judging the NASDAQ on its 2000 peak, which was similarly artificial and similarly based on speculation.

If I were looking at the Japanese stock market, I would ignore everything around that peak – everything prior to about 1994. From there, the return is slightly positive and it doesn’t include dividends. It’s not as good as the US stock market over that period, but it’s not disastrously negative, either.

Q12: Pocket notebook recommendations

I followed your suggestion a while back and started carrying a pocket notebook and a pen. It’s been really helpful for writing down ideas and just writing down impulse buys instead of actually buying them.

I started using generic top spiral notebooks but I found that after a while they just kind of fell apart in my pocket. I am looking for a more sturdy option that isn’t too expensive. What do you use?
– Darren

I really like Field Notes pocket notebooks. They’re expensive, but they’re really sturdy and a three pack is cheap enough that they work great as a low-cost gift.

There are many similar brands that are at about the same price point – Scout Books, Word., Doane, Rite in the Rain, and so on. They’re all well made, roughly the same size, and roughly the same cost.

I have received these kinds of notebooks as gifts many times, enough so that I actually have a backlog of them in a desk drawer. They work great as a pocket notebook.

Q13: Great “cheap” quote

I was reading this article at Slate which had a great quote in it I thought I’d share:

Bulk buying in general is cheaper, but you have to have a lot of money to spend on stuff you don’t actually need yet. Hand-washing saves on the utilities, but nobody actually has time for that. If I could afford to replace stuff before it was worn out, vehicle maintenance wouldn’t be much of an issue, but you really can’t rinse the cheap filters and again—quality costs money up front. In the long term, it makes way more sense to buy a good toaster. But if the good toaster is 30 bucks right now, and the crappiest toaster of them all is 10, it doesn’t matter how many times I have to replace it. Ten bucks it is, because I don’t have any extra tens.

It’s true. Most of the ways that people use to save money either require already having money – like buying in bulk or buying for reliability – or require having lots of spare time. Someone working two minimum wage jobs to put food on the table for their family of six has neither.
– Vicky

In my eyes, this is the key problem with our economy right now. Thirty or forty years ago, someone working two entry level jobs at 40 hours a week would have plenty of money to set up a sustainable household. That just isn’t true today – wages simply haven’t kept up with prices.

So, what can this person do? They should be relying on every single community service they can so that they can afford those things which will gradually lower their monthly bills. A family like this is a poster child for a food pantry or a clothes pantry or other such services and they should be using them. This family should be using that extra money from those services to eliminate debts, build an emergency fund, buy things in a way that saves money over the long run, and eventually look for opportunities to build skills and get better jobs.

That is a hard path, but the footholds to get started are out there. These are the kinds of people I am most interested in helping. I am thrilled if my tax dollars go to help families that are struggling in this way.

Q14: Writing in books

I find that I learn best when I highlight and write in the margins of books. Of course the problem is that they then have almost no resale value. Do you have ideas for methods for getting the most out of books without marking them up like that so that they still have resale value?
– Chris

You have to decide whether your textbooks are assets you intend for resale or items that you’re buying to maximize your learning. Does that textbook you bought have more in common with a notebook or with a share of stock? Is it an investment or a consumable?

My philosophy when I was in school is that books were consumables. I would buy them used and use them hard. I never hesitated to write notes in the margins or highlight or anything like that. The books were there to aid in my learning above all else.

If I managed to get a few bucks out of them at the end of the semester, that was great, but it was never a requirement. The purpose was to learn.

You have to decide what the main purpose of a book is for you. Is it to learn and absorb knowledge? Or is it an asset that you use minimally to retain value? There isn’t a right answer, but I found more value in using it to learn.

Q15: Family game recommendations

Do you have a recommendation for a good card or board game (not Monopoly or something like that) that will work well for an extended family but costs less than $20? I’m looking for something that’s easy to teach and play but is a lot of fun.
– Denise

I have a lot of recommendations here. Coup. The Resistance. Mascarade. Hanabi. Ultimate Werewolf. Guillotine. All of those are under $20, play quickly, are easy to teach, and are games I’d be happy to play with pretty much any group. They all have pretty variable player counts, too.

The specific one I’d recommend depends on your family. If they like fairly simple deduction, I’d go with Coup. If you like bluffing, I’d go with The Resistance. If you like a mix of bluffing and deduction and have a lot of players (more than 10), I’d go with Ultimate Werewolf. If you’re going to have a wide variety of player counts (anywhere from 4 to 13) and bluffing is fun for you and you don’t mind just a hair of complexity (mostly in terms of trying to remember who’s who, because everyone has a hidden role card and people swap them throughout the game), try Mascarade. If you want a cooperative logical game, I’d go with Hanabi. If you want a competitive game with a bit of backstabbing, I’d go with Guillotine.

I enjoy all of these games. Some work better with certain crowds than others. I have never found a game that clicks with all crowds, but I’ve played most of these with different groups and always had fun.

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.