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. Planning for disabled child’s future
2. Investing while in debt
3. Ethics of possibly stolen items
4. Overseas money transfer
5. Dollar store purchases
6. How young can investing start?
7. Used car valuation
8. Buying local
9. Convenience and frugality
10. Wireless rechargeable speakers
11. Medical uncertainty
12. Rental disaster
13. Remembering leftovers
14. Older personal finance books
15. Hobby hype
I’ve mentioned before that I play both fantasy baseball and fantasy football with various groups of friends. That makes September a particularly interesting month as the fantasy football leagues are having their drafts and starting up while the fantasy baseball leagues are on the home stretch.
I spend late August and early September looking at far too many Excel spreadsheets full of statistics, trying to figure out which players to pick and which trades to pursue.
Of course, from December to April, I don’t play any of these games. Unsurprisingly, that’s when I tend to be the most productive with other personal projects.
My husband and I just got the diagnosis that our newborn baby girl has a chromosome deletion syndrome which will result in her having severe physical and mental disabilities. Taking care of her for the rest of our lives is one thing, but planning for her care after we’re gone is another thing entirely.
If we both die suddenly while young, we feel there are adequate family resources to take over her care, with help from our life insurance (currently term policies of $500,000 for him and $250,000 for me). But assuming we die of a ripe old age, how do we plan for her elder care? Friends have suggested trusts, but how could we ever save enough to provide for her for decades? And, relatedly, do you know anything about researching quality residential programs? Our biggest fear is she’ll end up a ward of the state in some derelict facility, neglected or abused.
If you want to make this work, you have to start saving now. This means living as lean as you possibly can for the rest of your life. There’s no way around it.
You’ve already identified your best approach. You should create a special needs trust for your daughter and fund it with every spare cent that you can. You should work with a local lawyer to get this trust set up properly.
I think you’re making the right move in assuming that your daughter will have a full, long life, but there is no “secret trick” to make this work. You have to just fund a special needs trust to the best of your ability.
Unless my math is wrong, doesn’t it always make sense to invest when your debt’s interest rate is below 7%? If you can get 7% in the stock market, why wouldn’t you put your money there?
First of all, you don’t have to pay taxes on debt repayment. If you earn money from investments, you owe taxes on those earnings.
For another, an investment that earns 7% is going to have significant risk involved. If you need the money in a year, you might be looking at a significant loss – you just don’t know. The 7% return is an average of a lot of years, where individual years might be really good or really bad. A 7% debt repayment is a guaranteed 7% return (a tax-free one, too).
Finally, debt elimination improves your monthly cash flow, increasing the lifestyle choices you have available to you. While you can always eliminate debt later with your investments, you have to have a pretty good return to do it – better than 7% because of the tax issues.
I would pretty much always choose repaying any debt with interest over investing.
A casual friend of mine wrote to me on Facebook and said that she had a new iPad Air that she wanted to sell me. She wanted $280 cash for it. When I looked up the model on Amazon it was selling for almost $400. It seemed like a deal so I went ahead and bought it, paying her with 14 $20 bills.
The more I think about it the more I think this iPad Air was stolen. What’s the right procedure here?
Honestly, you’re in a pretty tough spot here. If the iPad Air was stolen, you are in possession of stolen property which can possibly get you into legal hot water. You did buy the item in good faith, but you seem to have some doubts as to the legality of the transaction at this point.
The problem is that if you turn this into the police (which is how you avoid such hot water), you’ll likely lose your iPad Air and not get your money back.
However, even if it were stolen, it would be tough for Apple to actually locate the iPad and properly report it stolen. The only step (that I’m aware of) that Apple takes with stolen new iPads is that they enter them into an internal database so that they catch them if someone brings the item into an Apple store for help in some way.
If you really want to be sure, I’d go into the nearest Apple store and ask them to check it out for you. Explain that you bought it from a friend and you just want to be sure about it – which is the truth.
I’ve recently sold my rental property in Hong Kong. I would like to transfer the money back to the US. How can I get the best exchange rate and lowest fees possible?
I’d look at the fees and exchange rates from banks that you do business with, particularly ones that have branches both in Hong Kong and the United States.
This is a situation where international banks have a huge advantage. They often transfer funds in this way at a very good rate with minimal fees.
I’d just shop around the larger international banks and see which ones could do it for you at the lowest rates. If needed, open an account with that bank, transfer the money to them, and then move it into the United States.
You should also be aware of any tax implications of doing this, which is a completely different ball of wax.
What is safe to buy at a dollar store? I bought a bag of flour there and it had bugs in it and two lightbulbs I bought there didn’t work.
Dollar stores are really a mixed bag. I generally avoid buying any perishable foods there as well as anything that could easily be infested (like flour, for instance). I also avoid buying electronics at dollar stores.
What do I buy there? Household supplies. Well-sealed food items (in a pinch). Office supplies (like printer paper). I generally stick to those categories at dollar stores.
In your situation, I would not have purchased the flour, but I would have bought the light bulbs. However, whenever I buy incandescent bulbs, I gently shake them and listen for the rattle of broken filaments before I buy them no matter where I am.
What is the right age to start teaching kids about investing? My nine year old has almost $1,000 in her savings account but it only grows by about $8 a year. Not only could the money grow more elsewhere, it could also be a teaching moment. How do I know when she’s old enough to get it?
My oldest son is eight and we’ve already started talking about investing. Remember, a savings account is an investment vehicle. It’s one with very low risk and very low return.
One good approach is to apply a “Bank of Mom and Dad” approach here. In other words, act as an investment house for her. Allow her to “buy” stocks using you as a broker, buying shares in companies she’s aware of (you just hold onto the money yourself). Don’t charge her any transaction fees. So, she could buy ten shares of Hasbro, for example, and you’d write down the value of the stock on the day she bought it. Then, you could follow the ups and downs of Hasbro for a while after that. You can pay her dividends out of pocket to teach her about them and, if she decides to sell, pay out that money.
This is what I do with my son. To him, it’s kind of a game, but he’s learning about how dividends work and about how stocks fluctuate.
I have a 2003 and am trying to assess the value of my car. Mainly doing this for net-worth calculations – I’ve checked out Kelley blue book. I get a minimum of 2800(low trade-in range) and a maximum of 5800 (Private party sale). Which is more realistic? Should I assume it is the lower amount so as not to be disappointed when/if I finally do sell it or buy another vehicle? Is there a better resource than KBB?
Kelley Blue Book is what you should be using. If you don’t know how to accurately grade the state of your car – and it sounds like you don’t – you should use the minimum value that Kelley provides.
You mention the big reason for doing so. It’s far better to have that car end up having more value when you sell it than less value.
There are competitors for KBB out there, but most of them are in limited use. KBB is pretty much the standard. You should expect that others will be using the same resource.
I understand the idea of buying local if the prices are the same. If you can get vegetables that a local guy grew for $2 a pound and they cost the same at the grocery store, it’s probably better to pay the local guy in terms of the money sticking around town.
How true is it if the local version costs more, though? There’s never really a guarantee that the money stays local even if you buy local since it’s just more likely.
This is really an area of personal value judgment here. There is no right or wrong answer.
Let’s say that the local guy is selling a pound of tomatoes for $2.50 and the store sells them for $1.50. Is spending that extra dollar with the local guy going to provide more value to you over the long term than saving that dollar?
It is really, really hard to quantify that. It mostly comes down to a gut feeling and a sense of what’s really important to you, and there’s no right or wrong answer there.
If you’re speaking strictly of vegetables and fruit (and meat and eggs and milk…), I find that local items tend to taste better because there’s less time between their harvest and when you buy them compared to grocery store items. For me, that’s worth a little premium.
How do you figure convenience into frugality? I live in a store with a general store / gas station that offers a few groceries at double the price of items in another town. Does it still make frugal sense to shop there if I just need an item or two?
That’s where the value of your time becomes important as well as the full cost of each option. How much is the half an hour of driving worth to you? How much does that extra drive cost you in terms of fuel and maintenance on your automobile?
I generally figure that every mile of extra driving is going to cost me about $0.30 or so. I also figure that an hour of free time is worth about $15 or $20 to me. If you assume that you’d drive 20 miles and it would take half an hour, that extra trip is going to cost you $6 in car costs and about $8 or so in lost time.
So, if I’m just buying an item or two, I’ll hit that local store. However, I’d prefer to just plan my trips to the next town as well as I can to avoid ever having to use the local convenience store.
My question: I can now afford to spoil myself with something I’ve always wanted: wireless, rechargeable speakers. I like music. What’s your take? You’ve also taught me to rethink EBay for electronics but not ruling out purchasing online.
Purchasing items from reputable retailers online is perfectly fine. I have never had a problem buying electronics from Amazon.com, for example. I just don’t trust peer-to-peer sales like eBay when it comes to electronic items.
A publicly-traded company that is selling new items directly usually won’t rip you off when it comes to electronics. When you get away from that, you start to slowly get on shakier ground.
Your best bet is to shop around. Brick and mortar stores generally have a bit higher prices, but sometimes they have tremendous sales, too. Be patient – find the best regular price on the speakers you want, then give it a little while and see if you can hit a sale. If you haven’t found one in a month, go ahead and buy it at the “best” regular price.
I am 31 years old and single. I don’t intend to marry for a long while, if ever.
In my family, there is a history of [a condition that’s pretty much life-ending that strikes people around age 40]. Some people get it, some do not. There’s a test you can get that tells you with about 90% likelihood whether you have it.
So far I have chosen not to take the test because I honestly don’t want to know. I do not have life insurance so I haven’t had to answer questions about the condition.
I got my first “good” job recently and right now there are papers on my desk for their 401(k) plan which offers a nice match.
Should I sign up for this plan?
The “smart” answer would be to get the test, but I am very afraid of the answer. I don’t want to know that I am going to die in ten years. I’d rather not know.
I am really struggling with this and I am hoping for some insight.
Daniel did provide more specifics about his family’s illness, but from what I could read about it, the disease is rare enough that he might be identified by the email, so I chose to edit out the disease’s actual name and just leave the relevant information about it.
It sounds like you’ve made the decision not to find out about the disease in order to preserve your quality of life. If that’s the case, the smartest route is to behave as though you don’t have the disease.
In other words, I’d go ahead and sign up for that 401(k) plan. Put money aside as though you’re going to be enjoying a nice long retirement. It’s far better than planning in the opposite fashion. If you arrive at age 45 with no retirement savings, you’re going to be in a real pickle.
Of course, you might make the argument that you should “live like tomorrow is your last day.” If that’s the case, you should probably find out, one way or another. If you know you have the disease, retirement savings isn’t going to help.
In other words, if you truly don’t want to know, you should behave like you’re going to live a full life. If you don’t want to behave that way, you should take the test and find things out for certain.
You have a lot of stories in your mailbag about how great renting is. I thought I would share my own story so that you can see how dangerous it can be.
I inherited a house in the town next to mine and I decided that, rather than selling it, I would rent it out. The rental would pay for the property taxes and insurance and earn me some additional money. Sounds good, right?
My first renter refused to pay his rent after the second month. It took almost six more months to get him evicted. Then, I had to change all of the locks on the doors and install window locks because he had gotten into drugs and had started breaking and entering homes. So, after nine months, I had only brought in two months of rent and had a bunch of cleanup and lock expenses. I lost money.
The next time, I was really careful about background checks. This time, I rented to a couple who paid the first three months rent up front. Great, I thought. They seemed like a nice couple so I only checked on them once every week or two. Anyway, when I went to check on them near the end of the third month, they had ripped every piece of copper plumbing out of the house, ripping the drywall to shreds, and removed every appliance. They had been gone several days and I later found out they had used false money and were using the house to sell meth. I turned this all into insurance, but I had to pay the deductible, which ate more than the three months rent.
So, after a year, I’ve sunk a bunch of time into the house and I’m down a lot of money. I plan on refurbishing it and selling it. It’s been nothing but headaches.
Renting can work out if you get reputable long-term renters. If you aren’t that lucky, watch out.
People who have success with great renters, particularly right off the bat, tend to be very high on using rental properties as a source of income. If you don’t have that initial success – as in Dana’s story – rental properties don’t seem as amazing.
Buying properties to rent them out isn’t a risk free proposition. You have to have renters, for starters. You also have to have good renters – ones who pay consistently and won’t damage the property. Without those two things, you’re going to have a hard time making this work.
Careful screening can help with the renter quality question, of course, but it can also drastically shrink the pool of people you might rent to. It’s a tricky situation.
For me, I’m not really interested in the time commitment and the pitfalls. I looked into hiring a property manager and buying a house or two to rent, but the net benefits didn’t seem all that great. Once all of the expenses were factored in, I would have to have the house constantly filled and not have any major disasters to beat the return I could get on the money by sticking it into stocks. I could have done better without the property manager, but then the property becomes a time sink.
your recent article about a person forgetting to take leftovers for lunch is an easy problem to solve. i package up the leftovers for the next day then PUT my car keys with the package in the frig! have never forgotten anything i do that for – and i am quite a forgetful person.
This is a really good idea for people who commute! In fact, I’d start doing that myself if I worked outside the home.
My problem is that I work at home. In the middle of the day, I’ll wander downstairs for lunch and check for leftovers and, if I don’t see them, I just assume we don’t have any.
My solution there is to keep the leftovers near the front of the fridge so I can’t possibly miss them, but if Sarah gets in there and rearranges things in the morning, she might move it to the back, or she might just take it for lunch herself.
I eat leftovers perhaps half the time for lunch, maybe a little more.
I bought some personal finance books at a yard sale. How old do they have to be before the advice doesn’t make sense any more?
In general, I don’t trust any specific investment advice from before the financial crisis. Some of the books published in the mid-2000s have ludicrous suggestions about investing in real estate that only make sense if you assume that real estate is going to go up 15% a year in perpetuity. Hint: it’s not.
In terms of general principles, though, most personal finance books always work. I still look at the Tightwad Gazette and it’s more than 20 years old (at least, the first issues are that old). I read Ben Graham’s books and those are fifty years old or so.
The core ideas of personal finance – spend less than you earn, focus on your day-to-day spending, get your mind in order – are timeless. It’s the implementations of those ideas that are timely.
How do you overcome “hobby hype”?
I am an active runner and video gamer. In both of these hobbies, something new comes out and it’s hyped to the moon on every blog and magazine. You can’t possibly live without playing this new game. If you don’t get these new shoes, you will have plantar fasciitis for the rest of your life.
How do you keep yourself from getting excited about this stuff and how do you figure out what’s actually meaningful and what is just PR?
I overcome hobby hype by avoiding hobby publications as much as I can. This is admittedly hard to do if you’re really passionate about a particular hobby, but I find that most of the time these publications just get me hyped about products, which isn’t really helpful.
Instead, when I have questions, I research those questions specifically and then walk away when I have the answer I need. The more I read, the more “hobby hype” I tend to fall for.
I also find that more time spent actually “doing” the hobby and less time spent reading about the hobby tends to cut down on hobby hype. If I spend an hour actually playing a board game, I tend to yearn less for a new one, but if I spend that hour reading about board games, my desire grows quickly.
Read less, do more.
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.