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. Poorest person at work
2. Getting angry over money issues
3. Regretted purchases
4. Mattress buying advice
5. Warehouse club versus regular grocer?
6. Term or whole life insurance?
7. Flying or driving with toddlers
8. Cheap Netflix device?
9. 6% interest on savings?
10. Convincing wife of early retirement
11. Anxious with money in bank
12. Why Vanguard over Fidelity?
With the launch of a new year, there’s a tendency to use that transition to reflect on your life, look at areas to improve upon, and come up with plans for those improvements. A New Year’s resolution is, of course, a common form of this. Many people come up with resolutions in the first days of a new year, but many people struggle to stick with them and just eventually abandon them.
Rather than coming up with some giant life-encompassing resolution for the new year, I encourage you to instead focus on one very small thing in your life to change and actually give that little change focus. For example, if you stop at Starbucks each day for coffee, figure out how to make something similar at home and make that your routine each morning. Go to bed half an hour earlier and wake up half an hour earlier. If you stop for fast food after work, go home and eat something there instead each day. Start parking your car at the farthest end of the parking lot, or take the stairs instead of the elevator each day up to your third floor office.
Just make one little shift, one little change in the right direction, and make that your resolution. Don’t commit to some huge dietary transformation or some insane exercise routine because it’s likely you’ll completely fail at it. Do something small instead. The real challenge there is just keeping it mentally front and center rather than actually doing the new routine, so put some reminders for yourself in places where you’ll find them. A sticky on your rearview mirror or a recurring reminder on your phone are great ways to do it.
Do something small that will actually stick instead of something big that will just fail. A little change is better than no change at all.
I graduated from college with an MBA in 2012 and worked for a small firm for a few years. Recently got a new job at an investment bank, something I’ve wanted since I started the MBA.
I come from a middle class background and got into a very good state school with a very strong MBA program, one of the very best in the country at a public school. I did everything with the intent of getting an investment banking job.
The challenge now is that everyone else in my group is incredibly wealthy. They have orders of magnitude more wealth than I do. They talk about going to the Hamptons and Martha’s Vineyard while I grew up in a farming town in Indiana. They drive Ferraris and I think of a Lexus as being out of my price range. During many conversations, I just have nothing to say.
I want to establish relationships and be part of the group but I don’t have the wealth to compete with that and I actually don’t want to. I dress appropriately and don’t mind going out for expensive meals, but I still drive my Toyota and take the subway to work and see no reason to change that.
How do I make this balance work? I’ve seen you give some great advice in the past on money inequality and socializing.
Daniel, if I were in your shoes, I’d really focus on two things.
First of all, remember the “spotlight effect.” People always believe that others notice far more about them than other people actually do. It’s likely that if you aren’t talking about Maseratis and old money, they won’t even notice that you’re not really contributing to those conversations. So just be quiet there, or if you do participate, just ask a question that allows the other people to talk about themselves, their thoughts, or their experiences.
At the same time, when the conversation steers to things where you can talk on an equal basis, don’t hesitate to do so. Don’t dominate those conversations, but be an equal part of them. Don’t be nervous about it – the conversation is on firm ground for you. Build positive connections wherever you can.
As for your own spending, keep it in check. Dress as you need to and go out for nice meals, but look at those things as professional expenses, not as personal ones. Keep your personal life in check. You’re going to be making a lot more than you earn from what I understand here, so take advantage of that.
My wife and I get along really well except when it comes to money issues. I handle almost everything our lives throw at us really calmly, but money just gets me going somehow. When I find out that we’ve spent too much money (both of us), I just feel myself getting angry at myself and at her and I know that the best move for me is to just check out of a situation where I’m angry so nothing ever gets resolved.
Do you have any advice for dealing with this kind of anger issue with money? I’m even getting mad at myself writing this email.
Your best approach to handling money issues when you’re having a hard time dealing with them emotionally is to not wait until a spending issue punches you in the face. Don’t wait until a credit card bill comes in to start thinking about budgeting. Instead, think about it between bills when the impact isn’t nearly as strong.
Another great strategy when you’re trying to figure out how to balance some personal freedom to spend along with the need to get your finances in check is to agree with your spouse that you each have a certain amount to spend however you’d like. Maybe you each have $40 a week you can spend however you’d like. Other than that, you both need to agree to it.
If you can handle those approaches, there shouldn’t be any reason for anger when the bill comes in unless someone is violating an agreement, in which case the issue is more trust-based within your relationship and deserves some relationship work.
You may also have some overall anger management issues. It wouldn’t be a bad idea to talk to a doctor about it in detail.
What have you bought in the last few years since you became really frugal that you regret?
I regret some of my hobby purchases. Some of the board games I’ve purchased have not clicked with my friends or with me in ways that I’d hoped, which means that they have to be traded or sold at a loss in value.
I regret buying some Kindle books when I could have easily picked them up from the library instead if I were willing to wait or make an interlibrary loan request.
I regret a couple of cooking related items I purchased, especially a now-defunct product that was supposed to encourage making fermented foods in glass jars. It utterly didn’t work and the company seems to have vanished.
I can’t think of any big purchases that I regret. I usually think those things through thoroughly before moving forward on big buys.
What’s the best bargain for buying a decent mattress? Everything seems really confusing. Mattress stores seem like a ripoff and every online thing about mattresses seems like a creepy infomercial.
You’re right that buying mattresses can be confusing because there are a ton of salespeople involved offering little more than marketing-speak and it’s hard to actually see or test an item that you’ll use so much.
I agree with the Consumer Reports mattress buying guide, for the most part. I would never buy a mattress without some sort of return policy in writing, the longer the better. I also would never buy a mattress without a pretty long-term guarantee that makes it clear that if a flaw shows up, they’ll replace it within the timeframe. Again, get it in writing.
Usually, shopping around doesn’t help, as mattresses tend to be sold exclusively through one particular retailer and a “similar” mattress at another retailer is quite a bit different. You’re better off buying a mattress that a particular retailer specializes in.
You should also trust your own body. You probably know by now whether a firm or a soft mattress is best for you (I prefer as firm as possible, while my wife prefers medium, so we compromise somewhere in the middle), so stick with that when shopping. Go to several retailers, but stick with the brands and models they actively focus on and compare how they feel when you lay down, their return policy, their warranties, and the history of the manufacturer.
Buying mattresses online makes me nervous, especially from a brand new company. You don’t know if the company will last long and you have no way of testing out the mattress yourself. My instinct is to avoid online mattress purchases.
I moved to a bigger city with a ton of competing grocery stores near me and several big box stores. What benefit is a warehouse club when prices are already low due to competition?
For starters, prices may or may not be low due to competition. Prices tend to vary a lot from area to area throughout the United States, so it may be that you just live in an area with a bit lower cost of living than before. For example, if you move from semi-rural coastal California to Des Moines, the shopping options will seem much greater and the prices will all seem lower, which would make one wonder why a warehouse club exists at all.
The best way to actually figure out why you should shop at a warehouse club or why you should avoid it is to just visit one. You can print a one day pass off for Sam’s Club here (click on the “Attachment” link); Costco is a bit trickier and the easiest way to do that is to get ahold of a small Costco gift card, as that will allow you entry. When you go, bring along the prices and sizes of some items you commonly buy and also bring your smartphone and do some price comparisons.
What you’ll probably find is that on some items, the warehouse clubs offer a pretty good bulk buy deal. That’s what they’re good for – buying large quantities of staples you use all the time. On other items, their prices aren’t better than your store. You’ll also find a lot of samples and a few small freebies, too.
That experience and those price comparisons will pretty quickly tell you if a warehouse club is right for you.
Trying to buy life insurance. I have read your advice and others saying that term is the way to go but the insurance people keep talking about whole life policies and they sound good. What’s the scoop?
A term life policy is easy to explain. You buy the policy and as long as you keep paying the premiums, for as long as the term lasts, your survivors will receive the benefit of your policy. After the end of your term, both you and the insurance company walk away, just like if any other contract ended. This is the least expensive way to get life insurance.
A whole life policy is trickier. It’s like a term policy, but without an end date; as long as you keep paying the premiums, it’ll last for your whole life. It usually includes an “investment” component as well that allows the value of your policy to eventually start growing and makes it possible to borrow against it. However, that “investment” is substantially worse than what you could get by investing the money on your own, it’s a lot less flexible, and the premiums are way higher than a term policy.
With all things considered, whole life policies are almost never as worthwhile as term policies. It takes many, many years for them to begin to become a good value. Basically, if you already have a whole life policy and have had one for many years, continuing it is a better move than cancelling it and switching to term, but if you’re buying fresh, term is the way to go.
We have a three year old and a one year old. We live in Oregon. In May, we are going to a wedding in Minneapolis, which is a 27 hour drive. A flight is about six hours. Clearly more convenient to fly, but I’m pretty sure it’s cheaper to drive. Also, 27 hours in the car with toddlers? What say you?
Traveling with small children is almost always going to be trying. We flew with a five year old, a three year old, and a one year old in 2011 to Seattle and it was definitely a trying experience; the drive from Des Moines to Seattle is very similar to a drive from Oregon to Minneapolis, so I know exactly where you’re at here.
However, given the choice again, I would still absolutely choose to fly in that situation. Our one year old did not have to buy a ticket – children up to 2 can ride on laps, so you won’t have to buy one for your one year old. For our older children, they were able to get a child’s ticket, which has a slightly reduced fare. So, you’re actually buying about 2 3/4 tickets rather than four.
Another factor is the reduced time. I don’t know if you’ve driven long distances yet with your child, but with children of that age, you’re going to be stopping regularly while they’re awake. Your absolute best bet is to drive over the course of two nights, with each parent (you say “we,” so I assume there are two parents making the trip) pulling an all-nighter to drive and sleeping in the car the next day. Those will be your only two long legs of driving without interruption, because when those kids are awake, you’re going to be stopping fairly frequently. I would be very hesitant to drive more than about 14 hours with small children, and I’d only do that with an overnight period in the drive.
Even if it saves you some money by driving, it’s going to take you at least two more full days of travel to make this trip and perhaps more. That’s a lot of meals eaten on the road, a lot of opportunities for car breakdown, and other challenges. That just doesn’t add up to “worth it.” I’d fly after shopping around a lot.
Looking into ditching cable with Netflix and a small roof antenna. Already hooked up the antenna and like it. Now we watch Netflix on a laptop but we would like it on our TV. What is the cheapest way to get Netflix on a TV? We have a flat panel but older and without “smart” features.
Assuming you have a smartphone, I’d buy a Google Chromecast, since it basically requires you to use your phone as a remote control. You use your phone to select the program, then Chromecast streams the program onto your television. It’s pretty slick.
If you don’t have a smartphone, I’d buy a Roku Express, which is similar to a Chromecast at a similar price point. It uses an actual remote instead of your phone. Both options are very good for what you want to do and both can be found for around $30.
Both will require some form of wireless internet, which I’m just assuming that you have in your home.
Just read an article of yours about HSBC Direct having a 6% interest rate on their savings. How do you get that rate? Why isn’t anyone talking about it?
The article you read was probably one of several written in the earliest days of The Simple Dollar before the 2008 economic meltdown. Before then, the Federal Reserve had much higher interest rates than they do now, which encouraged a bunch of competitive banks to raise the interest rates that they offer customers to really high levels. HSBC Direct was one of the highest.
Unfortunately, 2008 and 2009 changed all of that. The Federal Reserve dropped interest rates to zero, which meant that banks had to follow suit. In an environment where banks can borrow money from the Federal Reserve at 0%, it makes little sense for them to pay out much to customers in interest. It’s the same reason that mortgage rates are so low.
The only way you’ll see the return of 6% savings accounts is if the Federal Reserve starts really jacking up rates and that’s not going to happen any time soon. Right now, 1% is a solid savings interest rate with occasional teasers that are a bit higher than that; that’s just the current reality of consumer banking in America.
My wife basically thinks retiring before 65 is impossible and won’t even listen to discussions otherwise. She’s fine with saving a lot for retirement but for her that means having a lot of money when we’re 65, not retiring with less money earlier. I don’t want to wait until we’re 65 to retire and I want a few years of fun with her when we’re younger. How do I penetrate this wall?
I’m not sure what your conversations on the topic are like, so it’s hard for me to give really good advice here. My speculation is that you haven’t made a clear case as to why retiring at, say, 60 with a smaller annual income for the rest of your life is better than retiring at, say, 65 with a larger annual income for the rest of your life. If your wife sees you both happy, healthy, and active until age 80, and her visions for the future require significant money to happen (like lots of travel), fifteen great years might seem better than 20 average years.
I think the way to address this topic is by sitting down and seeing how much your wife wants in income per year when she retires, and then suggest that you agree to retire when you can come close to guaranteeing that much for the rest of your life (meaning a 3% withdrawal rate). So, if your wife says that $50,000 a year in income is enough for the two of you per year, you’d want $1.6 million saved up. When you hit that number, you can withdraw $50,000 a year from that account and live in perpetuity, with any Social Security money coming in as gravy on top of that.
Your goal then becomes getting that amount in the bank. Remember, the amount grows by 2%-3% each year due to inflation, so you need to be saving fast and hard.
In other words, I’d address it not in terms of age, but in terms of the life you want to live in retirement. If you can mutually agree to an income level in retirement, then make that your goal and agree to retire when you hit it.
In 2016 I discovered your site and have made some great financial changes in my life. I have $2,000 in savings for emergencies and am making a quadruple payment on my credit card each month. Feels great to see it vanishing!
One weird thing. I have never had more than $1,000 in any bank account for more than a few days before. Having $2,000 in there makes me anxious. I check my balance at an ATM at work at least once a day. I have this feeling like it’s going to disappear or there’s going to be a bank error.
How do I get over this? I know having it in cash is a bad idea.
Time is how you get over it. You’ll get used to it and will slowly start checking your ATM less and less frequently. (I did something similar the first time I had a balance that was a lot more than what I was ever used to.)
The best thing you can do is save your last receipt with a balance on it. You should also save your last bank statement. If anything goes wrong, you have those things to prove your recent account history. Almost any error that a bank can have can be fixed within several days with good documentation.
Another thing worth noting is that your bank has FDIC insurance on your account, meaning that if they ever went bankrupt, the federal government would repay your money (likely in the form of an account at a new bank with the same balance).
Why do you recommend Vanguard over Fidelity? They both seem to offer a lot of index funds with very low fees and expenses. Why one over the other?
I usually recommend Vanguard because that’s what I use personally. Their funds are good, their website works well, and I agree with their investment philosophy.
Fidelity does have a ton of investments that are very similar to what Vanguard offers. If I were starting from scratch, I wouldn’t really have a strong preference either way, but that’s not nearly enough of a reason to get me to switch all of our investments.
I just feel that it’s wrong to recommend something that I don’t personally use, so as long as I use Vanguard, that’s the investing firm I’ll mention.
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.