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. Investing for financial independence
2. Refrigerators and stoves for life
3. Frugal negativity and economy
4. Maximizing benefits at low-income job
5. Investing as charity?
6. Double savings tactic
7. Roth 401(k)?
8. Best “lazy” investment?
10. Better gas mileage in summer?
11. Selling vintage signs
12. America good long term investment?
13. Setting up a corporation
14. Paranoid about spending
15. Family road trip suggestions
The other day, my family and I were visiting a small town that had a stone arch bridge in the middle of town. As far as we could tell from the ground, there was no way to get up to the bridge, which was a shame, because my oldest son and my daughter really wanted to go up there.
Instead, we decided to go geocaching. We found a trail that appeared to lead to a geocache, so we started following that trail. Eventually, after a lot of winding, it ended up putting us up on top of this stone arch bridge on a thin little walkway – the only way to cross that bridge was by following an obscure trail.
Sometimes, the path you need to follow in life isn’t the obvious one. Sometimes, it’s worth trying other paths.
Sometimes, you’ll still wind up right where you wanted to be.
First off, my ultimate goal: I want to have $1,000,000 in my investment portfolio by the time I’m 30 (five and a half years). I have a steady job, working on a few side hustles, and use Mint to budget and follow it religiously. I have approximately $112k in debt, but it’s all my mortgage (3.5%, no PMI) and my car (2.74%). No credit card debt (I pay it off each month and I get rewards, plus it makes budgeting easier and gives me fraud protection) and no student loans. My goal is to have $16k in an emergency Money Market, and I’m scheduled to complete this goal in 7 months (I try to live on less than 50% of my income, and I’m largely successful). I match my employer’s contribution to my Roth 401K and have a separate Roth IRA account at Edward Jones. All together I have around $9k in my retirement portfolio. I want to take my money out of Edward Jones because the fees are high, then start a portfolio at Vanguard. I plan on following the Three-Fund Portfolio Model (US Total Stock Market Index (70%), International Stock Index (20%), Total Bond Market Index (10%)).
So here’s the question: Since my goal is basically to be financially independent by the time I’m 30, why would I want to tie my money up in a Roth IRA (I’m keeping the Roth 401K because FREE money from my employer!) when I can’t access the money until I’m like 65 without penalties? Don’t get me wrong, I’m going to continue to work in a field I find interesting and am passionate about, but I want to be able to spend some of those sweet, sweet dividends if I need them for travel, real estate, investment opportunities, early retirement, etc. How should I handle this?
You can withdraw your Roth IRA contributions any time you’d like without any penalties. The part you can’t withdraw are the gains – you’ll pay a 10% penalty on those withdrawals (and owe taxes on them) if you do it early, and early means before age 59 1/2. So, if you’ve contributed $10,000 and your balance is $12,000 (due to $2,000 investment growth), you can take out that $10,000 whenever you like with no penalty. You’ll just owe taxes and penalties on the remaining $2,000. There are a few exceptions that you may want to read about, especially “substantially equal periodic payments”.
Why would you want to keep money there? Well, when you do reach age 59 1/2, you’ll get that money tax free. That’s the big benefit of a Roth IRA. There are a few ways of getting it out early but they’re pretty restricted.
If I were you, I’d either study up on the rules of “substantially equal periodic payments” or stop Roth IRA contributions altogether and contribute to something else instead.
Regarding the Buy It For Life requests, I would like to see recommendations for refrigerators and stoves. We just had to buy a new refrigerator a few years ago and I really do not like it for many reasons.
We have a house that was built in 1955. We moved here in 1985 and the original oven (GE) is still working great although if I had the money and there was someone in my area who did it, I would gladly pay to have it refurbished to make it safer, because I really do not like the new ovens with the flat tops. I would like to know what are good ovens, though, in case I ever have to replace my beloved 1955 GE oven! I doubt that any oven that I buy now would last as long as this one did.
Your best bet for things like this is Consumer Reports, which does regular surveys of appliances. Any recommendation I might give you right now on a refrigerator or a stove would probably be wrong in two or three years, so your best solution is to just turn to CR when the time comes.
If you don’t have a subscription, it’s not a big deal – that’s what the library is for. Head down there, grab some back issues of the magazine, and find their surveys of refrigerators and ovens.
You’re correct when you say that new appliances probably won’t last as long as your old one, but a big part of that is because your old one has had an exceptionally long life. The perception that older things are made so well comes from the fact that we only see the survivors – if 1 million refrigerators were made in 1955 and 300 of them are still working, people only see those 300 and think that 1955 fridges are amazing and “they just don’t make them like they used to.” It’s the survivor fallacy.
I have read your blog for years, and I’ve noticed more commentary recently on attitudes like, “Being frugal is no fun.” Have you been getting more feedback like this lately, and if so, do you think it is some sort of economic indicator? It seems like I remember reading something about this in Amy Dacyzyn.
I have definitely been getting more feedback like that recently, and I think it comes from the fact that many people migrated to more frugal behaviors in response to the 2008 financial crisis and now are rebounding back from it.
I think that frugal attitudes are an economic indicator, but that indicator lags other indicators a bit. If you have a period of time where unemployment is low and stocks are high and interest rates are low, it’s a matter of time before more and more people talk themselves into spending more. The reverse is true, too – when stocks are low and unemployment is high, there’s much more incentive for people to save more money.
I think every economic indicator points toward people spending more, and one of the ways that’s apparent to me is some people feeling more disdain toward frugality.
Any thoughts on how to maximize rewards or benefits at an low-income employer that are often overlooked? At my landscaping job I re-sell the plants we remove or use them for myself, take the shop aluminum cans in for recycling, glean from fruit trees on clients’ properties (after asking permission), get hunting permission for deer, and forage mushrooms and berries(also after asking permission). I also fill up the company trucks every week using my rewards card to get the 5% back on gas and get reimbursed by the company in cash.
You’ve touched on some of them. The best strategy for saving money at a low-income job is to look for things you can get for free or at a low cost that can either reduce your own bills or can be turned around for your own profit.
One friend of mine works for a tree planting business. At the end of the year, if there are unplanted trees, the employees will often get a few of them for free. My friend has sold these trees (along with the planting service) to people he knows, turning an hour of work and a freebie tree into $50 or $100.
Another friend of mine worked in an industrial kitchen and used to constantly take home remnants of all kinds – the last pound of a large piece of cheese, for instance. It really cut down on his food bill.
Just watch – and when you see something that would otherwise go to waste, ask.
Would you ever recommend investing in individual stocks (not as an all of your eggs in one basket approach, but as part of your portfolio) in an industry or sector that you would like to see grow? I understand it would entail a lot more risk than mutual funds.
Would you just assume that any loss could be chalked up to charity? As much money as I’m considering investing I’ve probably given to the Audobon Society or the Chesapeake Bay Foundation over the years anyhow.
I don’t look at investing in a company as “charity” in any way. The people running a company are out to make money for themselves. It’s not “charity” to invest my own money so that I can go along for the ride.
The closest I come to that idea is something like Kickstarter, but in many cases, Kickstarter is just a product preorder for a company that needs an early boost of funding. I’m (usually) going to get that product eventually.
If a company is making a product that I’d really like to see in the marketplace, I’m more likely to “invest” by buying that product rather than investing in the company.
I’d like to share a nice spending X saving method I have been using since high school:
*Apart from the regular savings amount*, whenever I want to splurge on something really expensive (i.e. a gaming console, which is much more expensive where I live – usually about 4x the price in US!), I’ll save *double the required price*.
Half I’ll use to buy the item I want, and the other half I’ll add on top of my regular saving amount.
With this method:
1) I have a lot of time to evaluate if I really want that item in the first place (also, if the item becomes unavailable when I finally have accumulated enough money, I’ll suppose “it was not meant to become mine”)
2) I compensate for the splurge by adding more than usual to my savings (one can consider the extra saving as a “reward” for being patient or a “punishment” for splurging, depending of the perspective)
3) my budget never gets “tight” because of the expensive item, since I have already saved much more than the required price
Of course, I suppose this method needs a very specific mindset to work (i.e. I really enjoy to see my savings&investments growing and the security that comes with it).
I think this is a really good idea.
For me personally, I utilize that same “savings period,” but I just hold onto the money while I think. I don’t necessarily double it. Instead, I just give myself thirty days to think over any significant purchase and ask myself whether I really need it.
I agree that this takes some willpower, but the benefits are really tremendous. It can keep you from making impulsive purchases that won’t really stick around for the long haul, and that can be a huge positive thing in your financial life.
My wife and I have the option to get Roth 401k’s from our companies. We are both young, 24, so do you think that would be the better option over the traditional 401k?
If the investments are the same, it’s kind of a coin flip. At age 24, you essentially won’t be taking withdrawals for at least 40 years. Since the “best” option depends on what tax rates look like 40 years from now – and no one really has any idea about them – it’s really hard to forecast which option is better right now.
My gut feeling is that tax rates will be higher in 40 years, which would favor the Roth, but that’s nothing more than a gut feeling.
If I were in your shoes, I’d balance it. I’d contribute to a regular 401(k) and a Roth 401(k) in equal amounts. That way, you’re hedging your bets against future income tax rates.
If you were going to just dump all of your money into one single investment and let it sit for a lot of years, what would you invest in?
I hope you’re not just going to blindly follow my advice and invest here, because you’re far better off investing based on your own knowledge and research.
Having said that, I just wouldn’t dump all of my money into one investment. I don’t trust doing that. The closest I would come to it is through what I would call a “total world index fund.”
What’s that? Essentially, I’d put half of the money into a total international stock market index fund and the other half in a total domestic stock market index fund. That way, it’s diversified all over the companies of the entire world and essentially rides the rising wave of global capitalism.
For the last four or five years, I have lived entirely out of a duffel bag. I can literally fit all of the possessions I actually intend to keep in my Army surplus duffel. I have lived in apartments over that period but they have been either furnished ones or ones that I furnished with dirt cheap Salvation Army furniture that I left by the dumpster when I moved out. Thing is, I don’t really need more stuff.
Duffel contains six shirts, three pairs of pants, six pairs of underwear, four pairs of socks (in addition to what I’m wearing), two towels and two washcloths, a laptop computer, a Kindle, charging cables, four plastic dinner plates (wrapped in the towels), a cooking pot, some forks and spoons, a toiletry bag, a sleeping bag, a pillow, and personal documents. That’s it.
I have very little expenses and I don’t feel like I’m missing out on anything much at all.
This sounds amazing. If I were single again, this type of living would have a ton of appeal to me. I’d simply live in a tiny apartment somewhere and spend most of my time outside of that apartment in the community or in nature.
It reminds me of how I lived my last few years in college and my first year of professional life, when I really didn’t have many possessions at all. Most of what I owned fit in a bag and a single Rubbermaid container and I moved several times using space equal to what fit in half of a trunk of a car. It was so incredibly flexible.
It doesn’t really work in my current situation, with a family and such, but it really does strike a chord with me.
For years I would swear that I get better gas mileage in the summer than in the winter. I drive about 5 hours to my parents once every few months and I can do that trip on about a tank and a half of gas in the winter but in the summer I can make the whole trip if I’m full to the brim when I leave and then fill up in my hometown.
So this last year I got careful and measured it and I get about 39 miles per gallon in summer and 33.5 in winter.
What’s the deal? Are there cars that aren’t that swingy?
Gas companies use different gas blends in different seasons. Generally, summer blends are more fuel efficient in hot weather, while winter blends serve to keep the engine working during cold weather (at the cost of some fuel efficiency).
So, yes, you’re going to be more efficient in the summer, especially if you minimize air conditioner use. I notice the same thing, though I haven’t calculated it down to the same level as you have.
Where I live, the temperature can get really cold in the winter. Anything that ensures that my car will start when it’s -20 F out makes me happy, even at the cost of some fuel efficiency.
I recently came across a bunch of vintage metal advertising signs from the 1920s-1940s. They’re really neat advertisements for long defunct sodas and other things and some feature references to 3 or 4 digit phone numbers and such.
I have heard that these signs have value (I basically got them for free) but I don’t even know where to start selling them. I looked on eBay but couldn’t really figure anything out. Where can I start?
I’m surprised you didn’t see lots of sales on eBay. They actually have a specific category for this stuff that’s likely loaded with the exact things you’re hoping to sell. (I’ve even bid on a couple for decor purposes.)
My suggestion would be to browse that category to get a sense of what your signs might be worth and then try to sell them within that category. Remember you’ll be dealing with shipping and so forth.
Some signs can actually go for a lot of money. I’ve bid on signs before and watched the final value end up ten times higher than what I was willing to bid. People really love that stuff for decor.
I feel like, given the complete lack of interest that our government has in education and preparing our students for the future, that America isn’t a very good long term investment. Other nations are investing heavily in their children and will easily catch up to and lap us in the coming years. Doesn’t it make more sense to invest long term overseas?
I think there are more growth opportunities overseas – how can there not be? The standard of living in most non-Western nations has a long way to go to catch up to the standard of living in the West in many areas, and all of those areas are big growth areas.
The only question is whether it is local businesses that take advantage of those growth opportunities or whether American businesses manage to do it.
My guess is the huge established businesses will win out, but they’ll gradually become transnational businesses rather than solely American businesses.
In the long term, I think economic borders are going to mean less and less and less and eventually everyone is going to adapt to similar standards of living. If I were going to try to invest in that, I’d focus on American blue chip stocks, like the S&P 500.
I have taken your suggestion and started to record Youtube videos in my spare time to earn a little bit of money. Should I spend the money to start a corporation to protect myself legally in case something goes awry and I get sued?
It’s never a bad idea to set up a LLC or an S-corporation when you’re starting in freelancing like this. You’ll want to look into the specifics in your state, of course.
Taking a simple step like this now makes accounting a lot easier down the road and also protects your personal finances from a business problem.
It will mean some expense, of course, but that expense is kind of a way to hedge your bets. It probably won’t be necessary, but it can end up making a huge difference.
How do you overcome being paranoid about spending? Every time I have to spend money on something I don’t strictly need I start feeling really guilty and worried about it because I think of all of the stuff I could and maybe should be spending it on and so I wind up feeling really awful unless I choose not to spend at all.
The best strategy I’ve found for overcoming this feeling is to simply have a small account that I can spend freely from. I have a certain amount of money that I can spend on whatever I want each month, guilt free. I’ve done the numbers and know that I’m saving more than enough even when I do spend that money, so I don’t feel guilty spending it.
I mostly spend it on things like Kindle books and board games. I save a bit for travel and a bit for surprise gifts for my wife and a I spend just a little bit on edible treats.
The thing is, I don’t feel guilty about any of it. I know I can afford it, so it’s okay.
We are going on a 2,300 mile round trip road trip this summer with a seven year old and a five year old. I know you have taken long road trips with children. Do you have any suggestions for making it work well?
I usually bring along a laptop and a bunch of DVDs. The children watch movies on the laptop. I set it up securely in the back and put my oldest child in charge of managing the DVDs.
We also play some roadway games, like “I Spy.” We stop at roadside attractions pretty regularly, too, and we’ll turn off the laptop when the scenery is exceptional.
The biggest tip? Picnic lunches. At the start of your day, go to a grocery store and get stuff for a picnic lunch. Then, after a few hours of driving, have a late picnic lunch at a park and encourage the children to run amok and burn off some energy. It makes all the difference for the afternoon leg and makes for a cheap lunch too.
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.