Reader Mailbag #14

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently.
A primer on once-a-month cooking
An excellent book about Warren Buffett
How to break down big dreams into little steps

And now for some great reader questions!

Now that you don’t have to report to a full time job at a certain time, what has changed about your daily working schedule?
– Frugal Dad

The biggest change is the flexibility of everything. I have moved into a situation where I basically write when I’m in the writing zone – if it gets to where I’m pulling teeth to write during the day, I go do something else, like grocery shopping or mowing the yard or taking my kids to the park or something like that.

I generally try to maintain a normal workday – 7:30 to 12 and 12:45 to about 4:45 most days – but I’ll often transfer an hour or two of that to the late evening so that I’m not just sitting there spinning my wheels.

This lets me do things like mow the lawn, prepare great meals, get groceries, clean the house, and other such tasks when I’m not writing but during the time borders of my workday, which means when they are there, I can give them my full attention in a clean house with a nutritious, home-prepared meal.

Right now, my wife is at home and my daughter isn’t attending daycare at all (my son attends two to three days a week because he misses his friends). This actually hasn’t proven to be a distraction at all – when I need to focus, I just sequester myself in my office and focus. It’s almost reached a point where that office is the place where I flip that mental switch on – I go from being a husband/father to being a writer when I step through that doorway and close the door.

I notice you talk a lot about a well funded emergency fund (up to 6 months.) I am wondering if you think that you would need that much if you had a really stable job (ie teacher with tenure and a lot of experience) and good life insurance? We have several months of income saved but I kind of feel like any more would be better diverted to our Roth IRAs or something like that. What do you think?
– Mandi

A wise man once told me that you’re only a single mistake away from losing any job, and from what I’ve seen, that’s true. The moment you start believing you’re untouchable at work is the moment you’re most likely to get fired.

In other words, I don’t believe it’s safe to start making big assumptions. The point of an emergency fund is to protect yourself against the big emergencies, and the very moment at which you justify a small one because “that just won’t happen to me” is the moment that it does happen to you.

I wouldn’t touch it, though it might be a good idea to make sure that Roth IRA is funded before you make any more contributions to your emergency fund.

You mention RSS feeds once in a while. What’s an RSS feed?
– Kelly

RSS stands for Really Simple Syndication. Many sites (including The Simple Dollar) provide an “RSS feed,” which makes it easy for people to read The Simple Dollar in other formats.

What other formats? Well, I have about 12,000 people who subscribe to The Simple Dollar by email – they put their address into the email subscription form found on any page on the site. Those people receive an email that just includes the articles from the previous day – and that email is constructed from my RSS feed.

Many other people (21,000 or so) read the site using a RSS feed reader, like Google Reader. A feed reader basically just collects the RSS feeds of a bunch of different sites and collects them together in one place, so a person can effectively read all the articles from a bunch of blogs all at once. I use it to keep up with a lot of blogs myself.

For the most part, these readers never visit The Simple Dollar website itself – and I’m fine with that. I’m just happy that they’re reading.

How big is your current emergency fund? Would you like to have more or less in it? Why?
– Lukas

Our current cash emergency fund covers about six months’ worth of living expenses. I would like for it to be slightly higher, but that amount is pretty close to right for our family.

We do have substantially more savings than that, but it’s in other investments. In a desperate pinch, we could tap some of those investments, but my wife and I both believe that six months’ worth of living expenses is a pretty healthy fund for us to pinch when we need to.

I’m really confused by several descriptions of what you have for computers. What’s your home computer setup like?
– Paul

My main workstation – the one I do most of The Simple Dollar on – is a Mac Mini with 2 GB of RAM and an Intel Core Duo chip under the hood. I love it – I can’t conceive of myself using anything other than a Mac again for my main work for a long time. The many, many, many little things that Mac OS does well add up to a huge difference between using it over Windows. The individual things seem small when you describe them, but when you add them all up over time, it’s a pretty big gulf.

I also have a Dell laptop that I use when I’m on the road, running Windows Vista. It’s about two years old and is quite beat up, actually. My wife has a Sony Vaio laptop that’s also running Windows Vista.

Under my desk is a very old PC that’s currently being used as a house file server (that PC is mostly made of vintage 2001 parts). On the Mac and on both Windows laptops, it shows up as a shared drive where you can dump files and such. That PC is running Ubuntu Linux. It allows us to share data (music files, photos, home movies, etc.) really easily.

I can’t foresee any upgrades or changes for a long while, at least not until a machine goes kaput. Given the amount of writing I do and expected travel in the future, I’ll probably always keep a desktop and a laptop for redundancy’s sake.

You have mentioned financial advice for families and for singles several times, but what about a child free or childless couple?

How much would a childfree or childless couple need to provide to the other in life insurance if one of us was to die?
– Star

It really depends on your exact situation. In a childless couple, it mostly just needs to provide a platform so that the remaining spouse can get on with a reasonable life without being buried with financial burdens. Thus, I’d usually recommend that a life insurance policy would get the surviving spouse into a completely debt-free situation and also contribute to their living expenses for a few years.

The exact number you need is something you need to sit down with your spouse and discuss. Generally, the lower earning spouse should have a lower total insurance policy, as the higher earning spouse will have an easier time reaching financial stability in the event of a disaster.

What’s your opinion on an appropriate allowance value for children?
– Flo

There are too many variables to consider to give just a one shot answer, so I’ll just describe our plan for an allowance.

We plan on giving a very small basic allowance, something akin to one dollar a week for each year old the child is (up until age sixteen or so, when the allowance stops). Beyond that, there will be “bonus” amounts that the child can earn for tasks above and beyond the normal – a certain amount for scooping snow, an amount for mowing the grass, and an amount for other things, too. Again, we haven’t cemented these amounts or tasks, just the idea behind them.

As I’ve mentioned before, the weekly allowance will be divided into four pieces – spend now, spend later, spend on others (Christmas presents and the like), and give to charity.

That’s more or less our allowance plan.

I’m about to receive a very large inheritance – more money than I’ve ever seen in my life. What should I do with it?
– Malik

The first thing is don’t spend any of it immediately. The second you have your hands on it, put the entire amount in a six month certificate of deposit so you have time to cool your heels, think rationally about the money, and make sure you understand and have planned for all tax consequences.

During the cooling off period, think about the big things you really want from life. Debt freedom? Your own house? A very secure retirement? These are all good goals – your own goal may be something different, like opening a small business. Spend some time thinking about what you really want from life, and then when the certificate opens up, have a plan in place to use that money to make your dream come true.

It’s so tempting when we have a big lump of money to go spend some of it on something silly. Don’t – at least not immediately. Put it in a certificate of deposit for a while and cool your heels. You’ll be glad you did.

What have you been reading lately (besides the personal finance and productivity stuff)?
– Jaime

As I write this, I’m reading The Joy Luck Club by Amy Tan. I honestly can’t even recall what the last book I read before that one was that wasn’t related to The Simple Dollar, as much of my spare time lately has been eaten up with crunch time finishing up my book and also writing for The Simple Dollar, plus some other responsibilities that have cropped up.

I have a big stack of books on my bedside table that I can’t wait to dig into. Starting today, I’m trying to pencil in an hour worth of free reading a day just so I can be exposed to more and more writing, which I think is key to my development as a writer. I’ve come to view reading as something that is not only a personal pleasure, but a growth opportunity for the career I’ve chosen to pursue. I’ll keep my Twitter updated with the things I’m reading that are outside the realm of books I review here.

How can I know whether or not I can trust a source of information?
– Will

This is a follow-up question to my earlier comments about knowing the hidden agenda of writers.

It’s really hard to tell whether or not you can trust a source of information. I have very few sources that I trust all by themselves. Most of the time, I try to find multiple sources for any piece of information that I personally trust.

But what about evaluating the ideas of an individual person? I like the advice that Michael Mihalik gives in the foreword to Debt is Slavery. He advises asking two questions of someone that you hope to learn from: have they done what they are teaching, and do they have your best interest at heart? The first one somewhat relies on their story – if someone is just out there spouting out advice, you have no idea where they come from. The second one relies on that hidden agenda I talked about before. Try to figure out why a person is giving you this advice. If there’s a reason that would cause them to benefit from giving you bad advice, don’t trust it. Similarly, if that person would be damaged by giving you bad advice, then you can give it a little more trust. If you can’t discern either way, then I say give it minimal trust – there’s usually something hidden there.

If it doesn’t smell right, don’t trust it. Get at least a second opinion on the idea. That’s my advice.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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