What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Budgeting on non-monthly cycle
2. To re-enlist or not?
3. Socially aware investing
4. Credit card as emergency fund
5. Low salary offer
6. Endless road to better investments
7. Low interest loan payoff?
8. Staying with company long term
9. Cooking lasagna from frozen
10. Used camping gear
11. Borrowing money to invest
12. Lying about job to family
Most days when I am writing, our family dog is curled up right on top of my feet. He’s a little Yorkshire terrier and Maltese mix who is extremely playful during his waking hours but seems to sleep about sixteen to eighteen hours a day. During the day, when I’m working, he sleeps, but then he’s full of boundless energy in the afternoons.
I was very apprehensive about having a pet, but I agreed with my wife that it would be a good experience for our children, so we selected this little guy based on his reputation for being a great family dog. He’s been that and then some – the only complaint I have at all is that he likes to bark at other dogs when he sees them, to an almost comedic extent.
Plus, he has the added benefit of being very warm on my toes on a cold winter day.
I am looking around for budgeting and home financial software to help simplify our households finances. However one of the largest problems I keep coming across is is there seems to be no “fit all” solution for us.
For starters, a little bit of information about how we currently handle budgeting. At this time our family (me, my life-mate, and our toddler) live on a single income. I am the only worker (software engineer for banking software funny enough) , but I make enough to support our entire household and still make savings for retirement and emergencies as well as our hobbies, etc. She has little interest in managing the overall finances and is fine with just knowing what we have available for general spending and obviously being kept in the loop and decision making of any large purchases. In the end we keep 2 sets of accounts, one primary checking/savings accounts that are used for the households expenses and bills and our overall savings for the household, and the other is for her own discretionary spending.
I would eventually like her to be more involved (or at least more aware) in the details of our household finances. But please make no mistake, she is financially conscious and knows her own strengths and weaknesses when it comes to spending. In part I recognize its why we carry the setup we have. I myself have a similar issue to her as when I see larger numbers its super tempting to just say “we have $X, we can afford Y frivious thing”. Which finally brings us about to how I currently have our budgeting set up.
Our checking account regularly carries 1 paycheck plus a small buffer plus any holdover for large bills/expenses (mortgage, cell phones, upcoming insurance, etc). On a general level we budget from paycheck to paycheck (moving savings and excess leftovers from previous paycheck on payday first), effectively tricking ourselves to acting like we are living paycheck to paycheck. I have attempted to do the whole “keep a months worth in checking and budget over the month”, but I find I always have less at the end of the month than I would otherwise. In other words it just doesn’t naturally flow for us. We find it easier to keep track of less fixed things (like groceries and gas) in more human immediate terms. leftovers in these categories usually wind up in savings come next payday or sometimes will be treated as a “small windfall” for a short term splurge depending on our overall needs and finances at the time.
However nearly all financial software that I have looked at so far operates on this basic concept. Budget for the whole month only. Those that allow interruption of this rule do so only on a day by day basis. In other words its harder to view our budgets in a paycheck to paycheck basis that works so well for us. At this time I’m using a spreadsheet, but I work in linux and my life-mate plays in windows (remember my overall goal is to make this stuff more accessible to her). We both use android phones, but neither feel comfortable tying any software to our bank accounts. I’m fine with importing data mind you.
Do you have any recommendations of software that already exists? I have contemplated writing it myself (as its well within my capacities to do), however that is a serious time sink. Not to mention distributing it at all while working for my current company would violate a non-compete disclosure and open me up to other issues (I’ve already discussed this with my employer).
The reason personal finance software generally operates in a monthly format is that the billing cycle of most companies is a monthly one. People receive monthly cell phone bills, internet bills, electric bills, credit card bills, and so on. If you operate on a non-monthly cycle, then those bills all become irregular bills.
In other words, the context of personal finance packages is on the handful of normal monthly bills people receive, not on the cycle of their paychecks.
There aren’t any software packages I know of that run on a non-monthly cycle for that reason. The closest I’ve found to non-monthly cycles is through using forecasting in software like Quicken and You Need a Budget. Forecasting basically allows you to input the repeating pattern of your bills and your income and so you can look at the approximate state of things moving forward.
A little background on me. I am 31, single and have served on active duty for 6 years. I grew up very modest and have never had a very good relationship with money. I have managed to save about 35K and have recently starting putting money into the TSP (about 6K). I love my job, but it is physically and mentally draining. My brain tells me to stick it out for the full 20 years to get to retirement, but i’m not sure my body is up to the challenge. I excercise regularly, but some days are so long that the energy to do anything physical outside of work just isn’t there. Additionally, if i left the military, i have no idea what i would do career wise. I kind of feel stuck. I have no debt (paid off 23K since enlisting) and have a dream of building a home in Texas one day. I guess what my question boils down to is… Is having a steady income to live comfortably worth physical and mental strain? I am facing the decision of re-enlistment soon and would love any advice or input from you.
I’m of the belief that if your career path is bringing you so much daily misery that it overshadows the value of the destination, then you should consider a new career path. It sounds to me that your daily unhappiness is adding up to far more for you than the benefits of reaching the twenty year mark.
However, you shouldn’t change careers without some kind of a plan. What exactly would you do if you changed career paths? What would your new career be? What education would you need to get into that field? If you can’t come up with a good answer to those questions, you shouldn’t switch. You should never make a career leap into nothing.
So, my suggestion for you is to do some serious soul-searching before you have to re-enlist. Hit the library and pick up a copy of a good career guide like What Color Is Your Parachute? and see where it leads you. Take the exercises seriously. See if you can find something that clicks with your personality and skill set. If you can find something that matches you, then make a plan for switching to that career; if not, I’d probably just re-enlist.
I am fully invested with Vanguard, but I am troubled by their lack of socially responsible investment options. They have one only, a large cap fund that filters out guns, tobacco, and alcohol. But this leaves me profiting from companies that contribute to global warming. I am sick about it. There are many socially aware actively managed mutual funds, which are very expensive, tax inefficient, and sometimes have dubious socially aware filters and criteria. Can you weigh in on finding the balance between index investing and being socially responsible? I am a fan and I value your opinion.
There are a few major problems with the idea of socially aware investing.
First of all, the idea of socially aware investing means different things to different people. Do you consider it “socially aware” to invest in a health insurance company that doesn’t provide very good coverage for mental health conditions, even if their physical health is good? Some people wouldn’t worry about this, while others would. Is it “socially aware” to invest in a company whose primary profit motive is to encourage caffeine addiction in people?
Another big problem is in supply chains. Is it “socially aware” to invest in a company who has another company in its supply chain that has a history of chemical dumping? Sure, you might say that it’s not okay to do that, but how would you know what the behavior is of every single company in another company’s entire supply chain?
Issues like this go on and on and on. In short, I think it’s nearly impossible to find “ethically perfect” companies. Companies are collectives of individuals, and unless you completely agree with the ethics and values of everyone at that company that’s involved in decision making, that company is not going to be “perfect.”
In the end, I think that “socially aware investing” requires several things from an investor. It requires that you go through all of the social values that you hold and decide which ones are requirements for you to invest in. Then, you have to start evaluating individual companies, because it is very unlikely that you’re going to find a fund that filters things to match your particular set of values. The other option is to decide which values you’re willing to compromise on in terms of investing and then accept that a fund that matches your core values might compromise some of your secondary ones.
In other words, you either accept some compromises on your values and use a fund that’s made up of “ethically better than average” companies or else you do a ton of research on your own, invest in individual companies, and get closer to your values without ever quite getting there.
Saw an article about emergency funds on your site. Why not just use a credit card and repay the bill quickly? Yea you’d have to pay back interest on a big emergency but then you wouldn’t be wasting money in savings.
The problem with this solution is that it doesn’t address credit card emergencies. What do you do in the case of identity theft? A lost or stolen wallet? A bank that decides to cut your credit limit at an inopportune moment?
Those situations leave you in a lurch where a credit card won’t save you.
In the end, cash is king. It solves problems that credit cards just can’t solve. Credit cards can handle a lot of emergencies, but there are quite a few emergencies where a card just isn’t going to help.
I just graduated and received my first job offer in my field, which should be exciting except that the offer is for very low salary, even below the bottom of the range of normal salaries for my field in my area. While I can definitely make ends meet on this salary I am wondering whether I should ignore the offer or negotiate hard to get something in a range that’s in line with what my peers will be earning.
Given that you’re an entry-level person in your field, I think it’s reasonable to be paid near the bottom end of the range of normal salaries upon your first job. However, outside the bottom of the bracket seems strange unless there are some extenuating circumstances.
Do you have a solid transcript? Is your field a competitive field? Is your employer one with a sterling reputation? Does this job offer a ton of opportunity for advancement? Those might be reasons to accept a bit lower salary than you otherwise would, but if those things are not true, then you should’t accept an offer outside the normal range.
What I would do is negotiate. Make a salary counteroffer that would put you in the lower end of the normal range and see how they respond to that. It’s likely that their offer does have some negotiating room, so take advantage of that and negotiate.
I am a public educator and I work with a company for my 403b and a 457. I also work with another company for a Roth. (I am also trying to protect privacy. I don’t want to speak negatively about the financial companies or their representatives)
One company does not have a Roth and the other does not have a 457 thus the reason for working with both.
My question does not have to do with retirement readiness or questions as they pertain to how much one should invest, when to start, etc. I am a person who also tries to do research and reading on investing and I have read often about fees. I also try to take note of common themes or advice provided in the reading I do. One thing I often read (especially for someone like me) is to simply invest with Vanguard in index funds such as their target retirement fund years. The reading indicates that the fees are lower and over the long run this would be the most efficient way to fund.
I am about 2 years away from transitioning out of public education and my consideration/question is whether or not to move my Roth and my 403 to Vanguard and place in index funds. I am still 10 years away from even considering accessing my investments. The rationale for this is because of reduced fees.
Let me add one more thing: The only analogy I can give you that might help is this: A person wants to eat healthier so they start eating more vegetables. Then they hear that fresh is better than canned so they start to eat more fresh vegetables. Then they hear they should eat organic so they consider doing that …. Financially I read about all those folks who do not save enough, so you then start saving and then you read about more options (457, 401/403, Roth …. ) and then you start reading about fees …. So on the one hand I am proud of my savings. On the other hand should I be concerned about fees and with that said move to Vanguard.
Geez … so much for me being succinct. Sorry!! Let me know if any of that make sense.
The truth is that there is always going to be a better investment out there. You can keep looking and looking and looking forever, but you’ll soon reach a point where it becomes very hard to find a significantly better investment than where you’re currently at. Another problem is that investments never stay exactly the same. Expenses change over time, as does the relative quality of the investment. Investments that were near the top several years ago might not be there now, and new investments might appear that are near that top spot.
The reason Vanguard comes up is because of that search. While their offerings aren’t necessarily number one for each type of investment, they’re consistently very good in virtually every type of investment. Because of that, many people just use Vanguard as their “good enough and now I don’t have to think about it any more” investment option, which is a completely reasonable thing to do.
The point? Most of the initial steps in finding the “best” investment make a huge difference. Choosing to save at all is huge no matter what you choose to invest that money in. Choosing to jump from a below average investment to an above average one is a pretty big step, too.
However, when you start spending time comparing investments that are just barely different from one another, you’re going to have to have a lot of money invested to make it worth that time, especially since three months later, the landscape will have shifted enough to have undone that research, because when you’re focused at that level, a tiny change in ratios can make all the difference.
I don’t feel like that level of micromanagement is worth it for most ordinary investors. If your wealth has reached a point where it does make a sizable difference, you’re probably not doing it yourself.
My wife’s student loans are at 2.25% and 2.75%. Does it make any sense at all to pay them off early when they’re that low?
It depends entirely on what your goals are going forward. Some people choose to invest before paying off low interest loans, while other people do it the other way around. Neither one is strictly “right” or “wrong.”
Paying off debt early helps with monthly cash flow. It makes your finances more tolerant of things like a drop in salary or a choice to become a stay at home spouse or a radical career shift. That’s harder to do if you have your money locked up in, say, a 401(k) plan without taking a giant tax hit. Debt repayments also effectively act like an investment that returns that particular interest rate guaranteed, so an early loan payment is, in your example, like an investment with a guaranteed 2.75% return. Which isn’t bad at all.
Investing is usually a better long term strategy. Most investment options will have a long term annual return that’s better than 2.25% or 2.75%, though in individual years they may do worse. However, you’re still going to be facing that student loan payment for as long as possible.
I don’t think of either choice as “right” or “wrong.” I think they’re both “right,” because they’re both centered around spending less than you earn and doing something wise with it. Different people are going to be drawn to different routes depending on their internal psychology and goals.
I’ve been reading articles that say that you’re more likely to receive significant bumps in pay by switching companies rather than staying with the same one. Is it then a bad choice to stay with a company for many years if you’re leaving money on the table?
I think the strategy of switching employers regularly depends a lot on the field. It tends to be a solid idea in tech industries because startups are born, blossom, and then get bought out every few years and so if you can jump into one of those blossoming periods you can make very good money.
However, many other careers are centered around firms that are stable over the long term, and it seems to be a better strategy to establish yourself and move up in those companies and organizations rather than move around.
My general feeling is that if you can consistently jump to a new job that’s exactly like what you’re doing now except with more pay, then you should do that consistently. If that’s not a window that your career provides for you, then you should stay put.
Do you have any tips on cooking things from frozen, like lasagna? Whenever I do it, it turns into a bunch of mush that no one wants to eat.
If you feel that your frozen lasagnas turn out to be mushy when you cook them, I suggest trying a different approach when making them. Instead of cooking the noodles when you assemble the lasagna, use uncooked noodles.
The reason for that is that uncooked noodles absorb a lot of liquid as they cook. As the liquid in the lasagna boils, the noodles absorb some of that liquid, making for a firmer lasagna when it finishes.
You’ll definitely want to experiment here to find exactly the kind of lasagna firmness that you’d like, but when a frozen lasagna is super mushy/goopy, the reason is almost always due to the pre-cooked noodles.
Another tip is to simply take the lasagna out of the oven for 15 minutes or so before serving and allow it to rest on the table. This often allows the heat in the lasagna to balance out and causes the whole thing to “firm up.”
My wife and I have decided to camp in Yosemite in April. We have very limited camping gear so we are looking to buy some items. Is it okay to buy used camping gear?
Yes, provided that it’s nothing that’s a pure safety item. Never, ever, ever entrust your personal safety entirely to a used item as you have no idea how it has been cared for or maintained.
So, for things like a sleeping bag or a tent, you’re fine buying used. The condition of these items generally won’t make the difference between life and death unless you’re camping in the Arctic. On the other hand, if you’re into doing any sort of climbing, you should be buying any and all safety gear for climbing.
You may find it somewhat difficult to find used camping gear in the United States in the winter, though you may find quite a bit in March as people get into spring cleaning.
If I can borrow money interest free or at 1-2% should I do so to use that money to invest? I can handle the monthly payments on the loan and could just repay it all from the investment principal.
This is called leverage, and it’s generally a very poor idea to do this with your personal money because if things go awry when leveraging, they go very awry, and “very awry” is not something you want to do with your personal finances.
The problem comes when there’s a series of unfortunate events. Imagine if the item you invest in has a year like the stock market had in 2008, where the value of the item drops by 40%. Then, let’s also imagine that at the same time, you lose your job. What do you do in that scenario? You don’t have enough to pay back the loan and you don’t have the income to keep making loan payments. You could sell the investment at a loss and use the proceeds to make the loan payments, but you’re now in a big hole that will take a very long time to recover from.
The thing with leverage is that it can amplify gains, but it can also amplify losses, and if you’re not 100% prepared to handle amplified big losses, you should avoid such moves at all costs.
I have been a very diligent saver for many years and still have enough to live 8-10 years without working in my savings. About eight months ago, I left my previous job by mutual agreement. I was stressed out and not performing well and we mutually agreed it was better for me to move on. If anything, it was more my choice. Since then I have not told my parents or other family members about the career change, just avoiding the subject or acting like my career is still going as normal. I feel like I am lying.
If you do not feel comfortable discussing your career choices with your family, then you shouldn’t discuss them, period. It’s honestly none of their business.
If they ask prying questions, tell them something truthful in response. Tell them that you’re shopping for a different job because of issues with your employer. Tell them that you’re dabbling in a side business and describe whatever it is that you’re working on. Don’t contribute anything to discussions about the workplace.
You don’t have to tell them anything, and you can easily do that without having to tell lies, either. Just focus on what you are doing rather than what you’re not doing.
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.