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. Splitting 401(k) contributions into Roth
2. How to measure 2014 progress?
3. Listening to audio in kitchen
4. Uncertain about financial decisions
5. Reducing anger in financial talks
6. Youtube on television: advice
7. Pet insurance
8. Why is this so difficult?
9. Debt help
10. Zero sum budget question
11. Employer direct deposit problem
12. Buy it for life: duffel
13. Home temperature while traveling
14. Venmo questions
15. What is late model used?
Over the past two weeks, I’ve had the joy of having my children on a sixteen day break from school, a quirk that works out due to the placement of Christmas and New Years in the middle of the week.
We’ve spent a ton of time on various projects and family activities. We’ve had a lot of movie nights and many hours spent playing this crazy addictive puzzle that our oldest son received as a gift. We’ve read some books, played some games, lamented the lack of snow (as we all wanted to go sledding), and stayed up way too late too many nights.
But now that winter vacation is at an end. As you read this, the children have returned to school and Sarah and I have returned to a “normal” work schedule.
At least, as normal as it ever gets.
I am 30 years old, and currently have about $85,000 in my 401k. I currently contribute 12% per paycheck, and I receive a 100% employer match for that amount. The employer match is changing to 6% in the near future. Would it be smart to continue investing 12% into my 401k, with the 6% employer match? Or should I decrease my 401k contributions to 6% (receiving the full employer match), and send the other 6% I am currently investing to a Roth IRA? I wasn’t sure which option would be more advantageous in the long run.
You’re making the right move, at least in my opinion.
In general, the best move to make with retirement savings is to save enough in your 401(k) to get every dime of employer match, then put the rest into your Roth IRA (and if you have more, either pad your 401(k) or put it in a taxable account). That’s exactly what you’re doing here – the employer match is changing, so you’re changing your strategy.
The big thing to watch is the specific investment choices that you make with your Roth IRA. Personally, I have my Roth IRA with Vanguard and have the money invested in Target Retirement 2045.
I feel like 2014 was a year where I really turned around my financial ship. I know my overall debt levels went down and I started saving for retirement. What’s the best way to measure that progress?
The way I do it is by comparing my net worth year over year. So, for example, I’ll compare my net worth on January 1, 2015 to my net worth on January 1, 2014.
Did it go up? (In my case, it definitely did.) Did it go up by an amount that makes me happy? (In my case, again, yes, but I always feel like I could have done better.)
If you didn’t happen to calculate your net worth last year, my suggestion is to simply approximate it to the best of your ability. Look up your account balances and other information from that timeframe and just get it close. Then, calculate this year’s net worth as exactly as you can. This will give you a baseline for next year.
Do you have an inexpensive solution for listening to audio in the kitchen? We have a desktop computer in the family room to which I have migrated all of our CDs into iTunes but I want to listen to this in the kitchen as inexpensively as possible. Ideas? I’d prefer not to just have a long wire from the family room.
It depends on how close your computer is to the kitchen and how modern it is.
If your computer is fairly close to the kitchen and is equipped with Bluetooth, the best solution is probably an inexpensive Bluetooth speaker. Most electronic devices have a range of about 30 feet with their Bluetooth devices and the signal goes through most walls just fine, so if your computer is within 25 or 30 feet of the location where you want your speaker and it’s pretty new, this is probably the best idea. Just stop by your local electronics store and ask for a low-end Bluetooth speaker (I’m honestly not very familiar with the speaker market or else I’d recommend one).
If you have a smartphone, it’s even easier. Almost all smartphones can pair up with a Bluetooth speaker, so just move a healthy number of mp3s to your phone from your computer and use that to play music through that speaker.
If your computer is older and you don’t have a smartphone, your only real option is to either just get an inexpensive stereo in the kitchen to play your CDs on or else get a long wire from your computer.
My problem over the years has been that I have never been able to find a financial person who really fits what I am looking for top get financial advice.
I have tried the advisers who sound good up front. They take your money to invest and then hand off your money to another financial institution to do the investment part. When asking them for personal advice they either have none or the advise is vague (they just want your money for investment purposes).
Then I tried the Financial Fee based Planner. This approach was very expensive and I still did not feel totally comfortable with some of the advice given.
The last two years life has presented me with some unexpected financial challenges that I was not part of my financial plan. I am currently approaching retirement age with a number of financial questions and decisions as how to proceed from here. I have a few of options available to me but the problem is I have no idea which is the best “Financial” decision to make for the present and how these financial decisions will financially affect my future in retirement.
I am not comfortable with making these financial decisions on my own. I know the basics of financial planning but I do not have the tools nor financial expertise to make these decisions on my own. I understand to get sound financial advice that there is a cost involved, but I do not know where to find dependable financial advice at a reasonable cost.
Do you have any suggestions on a company/agency/financial tools/etc. that would be available to help advise people who are in my situation?
Your best solution here is a fee-based financial planner, but you have to decide up front what exactly you want from that planner and not every planner is going to click with every person.
From what you describe here, it sounds like you had a bad experience with a fee-based planner in that the planner offered advice that was just too aggressive for your tastes. That certainly can happen.
I’d suggest finding another fee-based planner and make it clear to that planner that you have a low risk tolerance. I’d also spend a lot of time up front establishing what exactly you want from that planner. What, specifically, do you want that planner to do for you?
The less specific and clear you are, the harder it is for any planner to do exactly what you want.
My husband and I have been trying to have a talk about fixing our finances for months but it ends every time with one of us getting angry and yelling and dragging the other one into a big argument that leaves nothing resolved and us mad at each other for a day or two. We are getting nowhere.
The solution here is a technique I call “chipping away.” Here’s how it works.
Start your talk, but with the understanding that either one of you can just stop the whole conversation at any time, no questions asked. Whenever either one of you starts to feel angry at all, stop the conversation right there before the anger bursts out. If you feel mad inside, stop the conversation. If your husband does, he should stop the conversation.
When that happens, the person that got angry needs to spend some time figuring out why he/she got angry. What caused that angry response?
Then, in a few days, when the emotions have cooled and the person has thought about what made them angry, talk about the thing that made that person angry. That should be the new topic, not the big financial talk. The big financial talk can wait.
Keep doing this over and over again until you both start to really understand the sources of anger. Often, they have little to do directly with personal finance, but when you figure it out, it will break up the dam of emotions that is keeping you from talking about money.
For Christmas our family got a new television that offers Netflix and Youtube and other things right on the television so that you can get to them with the remote. You have raved about Youtube in the past but whenever I use the channel all I can see are popular videos that are mostly stupid. How can you find the good stuff on Youtube?
Here’s what we do.
First thing – at your computer, open up a Youtube account. The purpose of this account is to simply enable you to subscribe to channels, which is a lot easier to do at your computer.
Once you have an account, visit some of the better channels there. I really like the TED Talks channel and the NPR Music channel. Here’s a great list of thoughtful Youtube channels and you can, of course, just browse channels.
Once you have a bunch of channel subscriptions, go to your television and log into your Youtube account. This will let you watch the videos from your subscribed channels right on your television.
I saw your article on insurance and it made me think about pet insurance. Do you have any advice or experience with getting pet insurance for dogs? We’ve recently had a hospital visit for our black lab (which cost an arm and a leg) and it would had been significantly cheaper with insurance including peace of mind/less strain on the finances.The animal hospital suggested Trupanion but I want to do some homework before I just jump in.
My view on pet insurance matches that of Consumer Reports – pet insurance is rarely worth the price. I strongly encourage you to read that article.
Let me be clear: I’m not saying that your pet doesn’t deserve the best. It’s just that, most of the time, the cost of pet insurance will far exceed the financial value you get from it.
You’re usually better off “self-insuring” your pet. Instead of giving a certain amount each month or each quarter to an insurance provider, put it in a “pet savings account.” Then, if a medical emergency happens and you need more money than you have on hand, tap that account.
Everything you talk about seems like common sense and really easy like I should just get it. But I never get out of debt and my debt goes up and down all the time. Why is this so difficult?
It’s difficult because you’re dealing with human behavior. Altering your behavior is hard. It’s never easy.
What you need to do to be successful at personal finance is easy to understand. Spend less than you earn! It’s not rocket science, people!
The problem is that actually implementing that in your life is tricky. We might know what the right choice is in some part of our minds, but actually making that right choice in the moment can be really, really hard.
That’s why reinforcement of the basic ideas is so important and why inspiration and motivation are so important. For some, the more you pound those ideas in there, the easier it becomes to make better decisions.
I am 28 years old my wife is 26. She went to college on a full scholarship so she has no student loans. I have two student loans one at 6.6% and $28,000 and another at 5.5% and $60,000. We also have three credit cards one at 19.9% and $4,000 another at 18.9% and $5,500 another at 9.9% and $2,000.
Right now we can barely make minimum payments on our debt. The minimum payments add up to about $1,000 a month. With rent and utilities and our other bills it eats up almost all of our money.
My brother says to just stop paying them and just wait seven years and they will go away but that seems like stealing to me.
For one, the student loans won’t go away after seven years. The credit cards will, but the student loans will hang around like an albatross around your neck. Not only that, if you choose to walk away, your credit is going to be utterly disastrous for a long time and that student debt will continue to poison things. You’ll have a hard time getting credit for anything – car loans, a mortgage, even an apartment rental – for a long time.
Since you’ve offered few details on what your financial and professional life actually looks like, I can only speculate on what’s actually going on here. I do see a lot of credit card debt, which is usually an indication of spending beyond one’s means.
If I can offer you one piece of advice, it’s this. Chuck the credit cards for a while. Cut them up. Don’t use them. Figure out how to pay your bills and live on your actual income. Just don’t walk away from those debts.
Would you be kind enough to explain to us how taking money out of our savings to start the Zero Sum Budget works? Do we then put our pension check back into the saving account at the start of the month?
For starters, a zero sum budget simply means that you account for literally every dollar that comes in so that you “spend” all of it each and every month. Holly Johnson has a great article about it.
The idea of a zero sum budget is that you’re using last month’s money to pay this month’s bills. I’m assuming by your question that you have at least a month’s worth of living expenses in the bank. If that’s the case, you don’t really need to do anything else. You can pull enough from savings into checking to get the ball rolling, but after that, it should all be self-sustaining.
So, let’s say you decide to start on February 1. On that day, you need to have the total amount of your monthly budget for February in your checking account and that’s what you live off of. Your pension checks can either go into savings or continue to go into checking, but at the start of next month, you need to have that amount ready to go again.
Our employer eliminated paper paychecks at the end of this year and requires all of us to have our pay deposited by direct deposit. I held out until the very end but I had to sign up in late December. My pay was due to arrive on December 26 and I would have normally picked up my paycheck at work that day and cashed it on my way home but lo and behold the direct deposit didn’t work right. It’s now January 2 as I write this and my pay is still in limbo despite daily calls.
My emergency fund saved me here. I keep about $4,000 in savings for emergencies and I have been using that during this expensive holiday week where my pay just didn’t arrive.
I’m not worried about recourse or advice. Just wanted to tell you that the emergency fund idea sometimes saves your cookie.
This is one of fifty million reasons why an emergency fund is vital.
What happens to you if your business suddenly fails to direct deposit your check and you can’t get your pay for a week or two? If your entire financial situation falls into disarray and you start missing bills and getting credit report dings and can’t buy anything because your cards are maxed out, then you need an emergency fund.
Even if that’s not your situation, an emergency fund turns almost any bump in the road into smooth sailing.
I go on a lot of weekend trips to visit friends and go to the gym all the time. I use duffel bags for both things but I go through them all the time. I’d like to buy one that will last for more than a year without the zipper failing or the sides ripping out so that I am not shopping and buying every year.
I can’t possibly speak more highly of the duffel bags from Best American Duffel. I use one for short trips all the time after I got tired of using cheaper bags from department stores. I have one that’s the #4 size, but you may want a smaller one for your needs.
If you’re looking for another option, one option is to check out the offerings at your nearest army surplus store. Again, their items might be too big for your needs.
My biggest complaint with cheaper duffel bags is that the zippers always fail on me. Cheap plastic zippers never seem to last. If there’s one upgrade I want on almost anything I buy that uses a zipper, it’s a big fat sturdy metal zipper.
What temperature can we leave the house at when we go on vacation in the winter?
Some say 55 and others say as low as 40. We are going to Argentina for two weeks and have an inefficient oil furnace with bad insulation (we rent).
Since I’m not sure where you live, I would call a local heating and cooling company and ask them for advice in this regard. The right answer has a lot to do with the specific climate in your area.
If you’re in doubt, I’d choose the higher temperature. Spending a few extra bucks on energy is worth it to avoid a significant chance of burst pipes and all of the problems that they can cause.
We usually leave our house at 50 degrees F when we leave on a trip.
We give our daughter a small monthly stipend for having fun while she is in college. Over Christmas break she asked us if she could start getting that money via Venmo instead of by check. I have a smart phone and so I downloaded the app and she showed me how to use it.
Is this safe? Is it really a secure way to transfer money to people? It just seems unsafe that you could transfer money with just a few taps on your phone.
Venmo is as safe as any other online payment system like Paypal. It’s just fairly convenient with a smartphone and well-marketed to the 25-and-under crowd. I consider such payment systems to be roughly equivalent in safety to a credit card.
The only reason I don’t jump on board every single financial system that comes along is that no system in the world is perfectly secure. Any given payment system is very secure and only has a tiny chance of being broken, but every place you share your personal information increases the chance that one of the systems you sign up for will be broken into eventually.
I would feel just as secure using Venmo as I would sending her a check, if not more so.
What is a “late model used” car? It seems to mean different things in different places. I thought it just meant a car that was a few years old but I was reading an article recently that seemed to say that a late model used car was one that is the newest version of that specific kind of car, so when a company revises a particular car model, only the newest ones are really “late model used.” What is right?
There is no strict definition of “late model used” car. In my experience, in non-technical conversations, a “late model used” car refers to a car that is not new but is less than five years old.
Sometimes, in more technical conversations among car aficionados, the other meaning will be used, but I see it far less often.
Unless you’re really unsure or you’re banking money on your understanding of the term, I’d just assume that “late model used” means a car that’s of recent manufacture that isn’t new.
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.