Questions About Retirement Contributions, Umbrella Insurance, Kanopy, Washer Balls, and More!

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. What should I contribute?
2. Investment income and savings rate
3. Systems versus goals
4. Amazon Prime? Hulu? Netflix?
5. Young people renting everything?
6. Umbrella insurance for average person
7. New versus late model used?
8. Good use for spare change
9. Kanopy
10. Do washer balls work?
11. Inexpensive dog food
12. Starting a website

There are two times during the year when I seem to be prone to getting a cold. I sometimes get one in the late winter, around February or March or even into April sometimes. I also sometimes get one at the start of the summer, in early June. I seem to have one of those early summer colds.

I’m not quite sure why this is, but it’s pretty consistent for me. Most years, I really only get one cold, but it’s almost always near the end of winter or right at the start of summer.

Of course, five or ten years ago, I’d get three or four colds per winter, so I’m definitely in a better spot than I used to be. If you consider that I live with three school-aged children and a school teacher, they bring home every germ under the sun, so it’s kind of inevitable that I get the occasional cold.

On with the questions.

Q1: What should I contribute?

I recently switched jobs and this is my first job with a 401(k) plan. I am 29 years old. I want to contribute to the plan to start saving for retirement but I’m not sure how much to contribute. Contributions are by percentage of your pay. The employer makes a contribution on their own, not matching.
– Amy

Honestly, I would make the largest contribution you think you can possibly stand. Start off with a 10% or 15% or even higher contribution.

There are a few reasons for this. First of all, if you start off with a high contribution, you don’t get used to a bigger take-home paycheck. Your life routine will adjust to whatever your take-home pay is, so if you don’t give yourself a window to get used to a somewhat higher paycheck, it won’t feel like a “cut” if you were to decide to start saving later. Plus, the only expenses you’ll really lose are the least important ones, the forgettable ones that don’t matter.

Second, a high contribution when you’re young is smart financially because it gives you a large amount in your retirement account early with a lot of years for the power of compound interest to make it grow and grow.

Third, if you decide later that your contribution is too high, cutting your contribution can give you some breathing room. It’s a lot easier to loosen your belt a little bit than tighten it.

Make a big contribution and don’t look back (unless you have to). Trust me, you won’t miss it, and even if you were to miss it, you can always dial it back a little later.

Q2: Investment income and savings rate

Liked your article on alternatives to net worth calculation. Question about savings rate: how do you handle investment income?
– Max

Investment income is a type of income, so you should include it as part of your overall income. If that investment income is rolled right into more investments, as it often is in savings or investment or retirement accounts, then that amount should also be included as part of what you saved.

In other words, once you start building up some money in investments, your savings rate should naturally go up, as you’ll be earning interest and dividends that are naturally rolled over into more investments.

I would not include the natural increase in the value of your investments, however. If you buy something for $50 that goes up in value to $100, I’d leave it alone. When you sell or withdraw that investment, however, I would count all of that as income.

Q3: Systems versus goals

Scott Adams talks about systems over goals. This sounds very much like that. You encourage people to develop systems (automate savings, buy store brands, develop inexpensive hobbies, learn to cook) that will help improve their finances. Goals inevitably leave you feeling like “now what?”. Systems just work
– drama

Scott explains his systems idea here. His idea of a system is that you do something every day or turn something into a regular behavior that is likely to produce better outcomes than what you are doing before. He uses the example of making better food choices and that acquiring the knowledge of better food choices and then consistently applying that knowledge is a “system” that will inevitably lead to a healthier body.

My view is that this is just goals in another form. You’re still aiming for something, even if it’s just “I want more professional opportunities in my life.” The big difference with a system is the place of focus, as the focus with a system is mostly on a daily activity or habit or routine rather than the big end result.

For example, a normal weight loss goal might be “I want to lose 50 pounds this year,” whereas a weight loss “system” would be more along the lines of “I want to acquire better knowledge of what foods are healthy every day and consistently apply that knowledge.” They’re both goals, as they both have clear delineations of what success and failure are and they both set a direction for your life. The difference is the time scale and the specific expectation of a long term result. A system is more oriented around a very short term result – did you do this thing today? – and the idea is that consistently doing that short term thing will generate long term results you’re happy with.

I tend to think of the “system” idea as being much like the behavior-altering system described in one of my favorite books of the last few years, Triggers by Marshall Goldsmith. I highly recommend you read my article discussing Triggers if you haven’t already. It’s a system I use in my life to great effect.

Q4: Amazon Prime? Hulu? Netflix?

We are interested in eliminating our cable bill. The only channels we really watch are the news and then a couple of shows that we record with our DVR. We have fast internet and the internet people said we can have several people streaming video with no problem. We are looking at streaming services but don’t know what to choose. What about Netflix or Amazon Video or Hulu?
– Madeline

The big question you should ask yourself is whether or not you want to replace the cable news with another news service or literally retain that cable news channel. If the answer is yes, your best option is Sling, which lets you subscribe to a fairly small roster of cable channels (that includes CNN and MSNBC, but not Fox News) for costs ranging from $15 to $45 a month and includes a streaming on demand service for a lot of the shows on those channels.

When comparing Netflix and Amazon Prime Video and Hulu, it really depends on what original programs you’re most interested in. They all have some very good original programs specific to their service. Honestly, what I recommend that people do is subscribe to one service for a few months and binge watch their original programming until you feel like you’ve watched or caught up on everything of interest, then deactivate that account and jump to a different service for a while and binge on their original programming. Amazon has the additional advantage of offering Prime shipping on Amazon products with their service, but I think Netflix has the best and widest variety of shows and Hulu is probably the best bargain while still having lots of good programs (especially since you can get both Hulu and Spotify – audio streaming – for a combined monthly price lower than Netflix alone).

As I said earlier, I’d pick a service that has a few shows you’re interested in, sign up for that service until you’ve watched all of the stuff you’re interested in, then jump to another service for a while. Having them all is overkill and would add up to not being much less expensive than cable.

If I were setting this all up for my parents, I would probably set them up with an over the air antenna to get local channels, a low cost Sling service so they could watch their preferred cable news, and one of the other streaming services. This would end up costing them about $30-40 a month and they’d have more content than they could ever possibly watch.

Q5: Young people renting everything?

What do you think about young people renting everything? https://www.nytimes.com/2019/06/08/style/rent-subscription-clothing-furniture.html
– Mark

I think it’s a natural response to the economic hand many people are dealt today when they walk out of college. Many young people are saddled with a ton of debt leaving college, enough that even a really good paying job still means many years of debt repayment. They’re often entering into a career path that doesn’t offer much stability, as companies will hire and fire skilled entry level people at a moment’s notice and often only offer them 1099 positions rather than fully hiring them. Houses, even after being adjusted for inflation, cost multiples of what they did back when their grandparents and even their parents were young. It’s not impossible to win the game, but it’s like being dealt a 2-7 offsuit with a short stack, to borrow a poker analogy.

The most effective strategy, then, is to make yourself as transient as possible. If you know you’re likely to be moving around a lot to find work and you know that you can’t afford to buy a home without putting yourself on an extreme financial tightrope and you don’t want to have to move a lot of stuff when you’re moving for work every six months, why not just rent it? If you rent an item for six months for only a portion of what it would cost to own it and then you can return it when you’re moving from Des Moines to Boston or whatever, it actually makes a lot of sense.

In other words, I think it’s a normal response to the economic reality that many people are facing. They can get decent paying jobs but they often have little permanence, they’re saddled with student loan debt, they have to move a lot, and housing prices make buying a home unrealistic.

Q6: Umbrella insurance for average person

Insurance buy wants me to buy “umbrella” insurance. I make about $50K a year and am single. Don’t own a home or have much stuff. Seems kind of a waste to me but want to make sure.
– Adam

Umbrella insurance is “corner case” insurance, for situations where you’re found to be at fault and the cost is beyond what your other insurance policies can cover. It’s usually pretty inexpensive and the reason is that it’s rarely used. It’s peace of mind insurance that only takes effect in rare situations.

Now, is it worthwhile to buy it? If you have the financial ability to easily pay for it, it probably means that it’s worthwhile to do so. A $1 million umbrella policy usually clocks in at about $15-20 per month. If that’s not a stretch for you, then it’s probably worth getting such a policy. If it is a stretch for you, then an umbrella policy is probably not the best choice for that money.

The thing is, 999 times out of 1000, you won’t need it. That 1 time out of 1000, though, makes it so valuable that it’s worth it.

Q7: New versus late model used?

I was talking to my mechanic about replacing my current car (2007 Corolla) and asked whether he thought it was a good idea to buy new or used. He said it depends on the model but didn’t give details. What’s the best value for the dollar? Used or new?
– Kelly

How many miles do you expect to be on the car’s odometer when you sell it? You don’t have to be exactly accurate, but you should have a reasonable target. 100,000 miles? 150,000 miles? 200,000 miles? 300,000 miles?

When you have that target number, start looking at car prices based on how much you’re paying per mile that you expect to get out of it.

So, let’s say you just want to get a replacement Corolla. A basic new Corolla checks in at around $20,000 from what I can tell. Then you see one that’s used with 30,000 miles on it for $15,000. Which should you buy?

Well, if your mileage target is 200,000 – you can base this on the mileage on your current Corolla that you’re about to trade off – then you’re getting 200,000 miles for $20,000 or 170,000 miles (200,000 mile target minus the 30,000 already on it) for $15,000. The new car, then, costs you about 10 cents per mile, while the older car costs you about 8.8 cents per mile.

In my experience, most of the time, if you have a fairly high mileage target for your car (meaning you intend to drive it until it really needs to be sold or traded off because lots of repairs are coming up), a late model used car tends to be a better deal. Buying new is only better if your game plan involves trading off the car at a pretty low mileage, like 100,000 or less. It’s not always true, but it’s usually true. I use the above calculation as a quick check just to make sure.

Q8: Good use for spare change

I have a spare change jar on my bedside table. When it gets mostly full I take it to the grocery store and buy a few things for meals. Then I go to the self checkout where I’m not really holding anyone up by just dumping the change into the change slot. It takes a couple of minutes to check out but I use up a good chunk of my change jar. Plus I know I’m buying worthwhile stuff instead of the junk I would probably buy if I just turned it into a $20 bill or an Amazon card at Coinstar.
– Maddie

This is a pretty good idea, one that I’ve used myself not too long ago. I had a pocket full of change and needed a few things at a grocery store (some produce for meals the next few days) that happened to have a self checkout, so I just dumped in most of that change and it paid for all of the groceries. It felt like I solved two problems at once as I got rid of that change and I got the groceries I needed.

Loose change isn’t really a problem if you have a bank that will accept it for you, but not all banks do that and if you don’t have that option, Coinstar is about the only convenient way to dump a bunch of change. With Coinstar, though, you’re either accepting a fee to get cash or else you’re getting a gift card to Amazon.

While this solution isn’t perfect, as you probably wouldn’t want to buy $100 worth of groceries with this strategy, it’s a good idea if you need two or three things at the store and it has a self-checkout. Just take your small change jar with you and pay for it with that change.

Q9: Kanopy

I think you should mention Kanopy on your site. Kanopy is kind of like free Netflix provided by your local library. The movies on it are mostly documentaries and lesser known movies, but it’s free and there’s a ton of good stuff on there.
– Aiden

I took a peek at this service and it’s basically exactly as Aiden describes it. It’s basically Netflix that you can access with your library card (assuming your library participates) for free. You actually “rent” the movies from the service and you can watch 15 per month currently.

The selection, as Aiden mentions, is mostly documentaries and lesser known movies, but I built a list of about fifteen that I’d like to see just with a ten minute browse or so. I quickly found films like Marwencol, A Man Called Ove, Eighth Grade, Loving Vincent, and Life Off Grid.

Given that the whole thing is free if your library participates, it’s pretty cool.

Q10: Do washer balls work?

Do washer balls really work? $9 for something that does 2000 loads of laundry seems too good.
– Amber

They work slightly better than washing your clothes with no detergent or soap at all, at the cost of beating your clothes a little harder and likely slightly reducing their lifespan. In other words, I don’t think they’re worth it.

There are a lot of videos out there showing washer balls producing clothes and sheets that look a lot cleaner than when they went into the wash, and that’s absolutely legitimate. However, they’d look that clean if you put them through the washer with nothing in there, because just running water and agitating clothes will remove the same dirt and surface stains. In nether case are your clothes getting deeply cleaned.

If you want a cheap laundry solution, I recommend my own powdered mix. Just buy a box of soap flakes, a box of borax, and a box of washing soda, then thoroughly mix a cup of each of those powders in a small container, then pop in a tablespoon. One tablespoon of that mix will do a far better job than a washer ball and it costs about $0.04 per tablespoon.

Q11: Inexpensive dog food

Where is the cheapest place to get dog food?
– Bill

It entirely depends on what kind of dog food you’re looking to buy. If you’re simply aiming for the cheapest possible calories for your dog, head down to the local WalMart and buy the jumbo bag of the cheapest food they have. That’s about the cheapest option around for dog food, but it’s not particularly healthy for dogs. It’s the equivalent of people living on junk food.

As you move up in quality, my experience has been that for most of the mid-level quality dog foods, Amazon has the best prices around. I haven’t found anything that can beat Amazon on a lot of the fairly high quality but not high end dog foods. There are times when good mid-grade dog foods are on sale at the store where the price beats Amazon, but not consistently.

If you’re getting into the really expensive foods, you’re probably better off making the food yourself from actual ingredients, but if you want to purchase ready-made food, you’re probably looking at buying from the manufacturer directly on their website.

Q12: Starting a website

Do you have any suggestions for starting a website like The Simple Dollar? I would love to be able to work from home.
– Mandy

First of all, you’re not going to make much money from a website without a ton of upfront time invested in it without making any money at all. I spent several hours a day for multiple years before The Simple Dollar made any money at all, and a couple more before it had enough of a following to be able to sustain me full time even at a reduced income from my previous job.

If you’re not willing to put in that kind of work, you simply won’t be able to build a website that can sustain you.

Furthermore, it’s actually different (perhaps harder?) today to pull this off than when I did it. There are more people online, of course, but there are a lot of people trying to grab their attention and many people stick to social media or to watching videos. Your best approach today, from what I can tell, is to build your following on social media, create monetized content (written, video, whatever) elsewhere, and link to it. So, you’d build up a social media following, create Youtube videos, then link to them on social media.

I’m not saying you can’t do this, but what I am saying is that you need to be willing to create content you love for a long time and then maybe you’ll be able to do it full time. If you’re not doing it for the love of doing it, you won’t be able to sustain it.

That’s not to say there aren’t other models for earning an income online. I have a friend that builds standalone websites on a specific topic then gets people to link to them as some sort of authority on the subject. He puts ads on them and then earns a little revenue from each of them.

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.

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