Reader Mailbag #24

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.
I don’t sell my content, ever
Jim Cramer’s only really worthwhile book
A solution for when you’re too tired to cook that doesn’t empty your wallet

And now for some great reader questions!

What do you think of the concept that, to be able not to work and live off your funds, you should calculate how much money you spend a month, and then multiply it by 200? So, say, if you spend 2,000 a month, you should have 400,000 invested, and that would allow you to get the interest each month, and the money wouldn’t finish? Does any of this sound reasonable?
– Lola

That’s a reasonable formula, I suppose. For me, that cuts it a bit too close to the bone – for that to work, you have to bank on low inflation, and we’re certainly not seeing low inflation right now. You also have to believe in a very solid investment return.

What you actually need is enough of a bankroll so that each year, after you take out your living expenses, your investment earns enough return so that you’re not only back to where you started, but you’re back to where you started plus inflation.

So let’s look at your example. If you spend $2,000 a month, that means you spend $24,000 a year. That means your $400,000 investment would need to return at 6% to stay where it’s at. Then there’s inflation. Even if you buy that inflation is only at 5.1% (what the government claims as of June 2008, but I believe is much higher since it doesn’t account for gas), that means your investment has to return 11.1% over the year just for you to stay even. Add on top of that that you’ll likely be taxed for at least some of the gains, and that’s far too much to realistically expect.

Instead, you should shoot for using something like 1-2% of your amount annually. This means that your actual balance, to give you a living expense of $24,000 a year right now, should be somewhere between $1.2 million and $2.4 million. You’ll almost assuredly be fine in perpetuity with that amount.

I love the reader mailbag. I am always surprised at how many questions you manage to get (and answer) many are often relevant to my situation. I run an entrepreneur blog and I was wondering how you get people to ask so many questions?
– Ryan

One big reason is reader volume – there are so many readers and so many discussion threads around here for people to comment on that there are just simply a lot of comments and questions. Another piece is that I give out my email address and my IM name for people to contact me with their questions and comments.

The end result is that I get far more questions than I can use in the reader mailbag. Some of the other questions inspire posts – still others just result in interesting conversations with readers.

If you want questions from readers, give them as many routes as possible to contact you. Have an email account where they can send stuff. Be available on IM. Allow comments, and invite questions. Be on Twitter and Facebook and other services. Make it as easy as possible for readers to ask.

How do you get a spouse to recognize the amount of money they spend on a ‘hobby’ is a huge expense? I have suggested tracking how much is spent, but the response was – “No way, I’d be scared to see the real number, I know it’s huge.”
– Karen

For one month, do a very careful accounting of all of the money your family spends. Sort it into categories – food, household, etc. – and let one of the categories be all expenses related to that hobby. Don’t forget the transportation costs to participate.

Then just simply make a bar graph of this information, showing that you spend more on this hobby than you do on food for the entire family for the month (if it really is that much) or on the mortgage. That is usually a real shocker – comparing it to the amount you spend on basic living needs is usually a wake-up call.

Follow it up with a talk about goals. Discuss how much nicer of a home you could have if the expenses for the hobby were just cut in half.

That’s the route I’d take, anyway.

Do you think America fares well on the parameter of Happy Families?
– WhirlMind

I think the material comfort level in America is very high. I think part of the cost of that material comfort level is less family involvement, as people have to devote themselves strongly to work in order to keep that material comfort level.

That being said, I think it’s hard to judge a nation in terms of the happy families in it. I know tons and tons of well-rounded happy American families, and I know there are tons of well-rounded happy families in every nation. I think it’s very hard to fairly judge family happiness from nation to nation, particularly when living standards and ways of life are quite a bit different.

Have any advice to get extra money for a student with no time, not even for a half-time job? I know it sounds maybe even ridiculous but the situation here its pretty hard since… ever and things will not get any easier when the time for me to move on comes.
– Luis

Without time commitment, you’re not going to earn much money at all. Your best bet is to look for opportunities that fold neatly around your spare time – things like filling out surveys and the like that can earn you a bit of money but not a great wage.

If you’re a student, though, your chief focus should be on maximizing your grades, period. A high GPA is your ticket to a nice job or to graduate school – worrying too much about earning a few extra bucks now won’t get you anywhere.

You mentioned you’re reading some philosophy lately. I’ve always wanted to know more about philosophy but don’t know where to start. Any suggestions?
– Pete

I’d start off with Bertrand Russell’s book History of Western Philosophy. It’s a fun read and it touches on tons of different areas of philosophy. Just read it slowly, absorb the ideas, and when you’re done, ask yourself what ideas intrigued you the most. Then follow that train of thought – Russell’s book will point you towards more philosophical works in that direction.

One thing to note: Russell is pretty blunt in his opinions of different philosophers and their ideas. If he disagrees, he says so, and he also doesn’t hesitate to severely critique ideas and philosophers he disagrees with. Take it lightly and don’t let Russell’s opinions make up your mind for you – if you find the ideas interesting, read other works by that philosopher, anyway.

How do you feel pets factor into a frugal/simple lifestyle? In particular, dogs.
– Carol

Never own a pet unless you sincerely care for pets. Don’t let someone else talk you into having a pet if you’re going to be the one responsible for it. Pets deserve care and love from their owners and to give one anything less is unfair.

On the flip side of that, if you dream of having a pet, by all means get one. What a pet needs more than anything is attention and love, and if you have that, then everything else will fall into place. The actual truth is that most pet expenses, such as expensive foods and equipment, is often a substitute for time, love, and attention. Instead of buying expensive dog food at the store, figure out what it’s made of and make it yourself, for example – it’s more nutritious and healthy for the dog and likely cheaper for you, with the only drawback being that it’ll take more time.

If you have the time to invest in a pet, it’s well worth it.

What’s your favorite board game?
– Emily

My wife and I love board games, and conveniently enough, so does my closest friend. Many evenings are spent at our house playing board games late into the night.

That being said, our favorites over the last ten years, in no particular order, have been Settlers of Catan, Ticket to Ride, Puerto Rico, Cartagena, Princes of Florence, and Carcassonne. I’d suspect that each game has seen more than a hundred hours of play time at our kitchen table, with Settlers probably coming out on top (because it’s the one we’ve owned the longest). Ever seen a board game wear out from overuse? Our copy of Settlers of Catan is pretty much there.

In order of complexity, with the simplest going first, I’d rank them Cartagena, Carcassonne, Ticket to Ride, Settlers of Catan, Princes of Florence, and Puerto Rico. The middle two – Ticket to Ride and Settlers of Catan – would be the ones I’d probably use to introduce new people to the types of interesting board games we like to play.

I just stumbled upon a website called rudder.com. They help keep track of your money after you enter information about your debt, income, etc. Is this a safe site?
– Erma

My general rule of thumb when it comes to websites wanting my personal information is this: am I getting something truly compelling out of the deal? Since I can already do all of the money tracking I need to do in Excel, I don’t find such websites worth the potential risk of identity theft.

Yes, I know many of these sites have a flawless privacy record and a great policy. But you’re still sending your data through a third party, one that you’re trusting to keep safe. All it takes is one person flipping a switch and your data is being stored by someone else.

I prefer to minimize the number of places where I share sensitive information about myself. That way, there’s much less risk of identity theft.

What is the most frustrating aspect of your current day-to-day life?
– Lee

Amazingly enough, interruptions. Right now, I have my days pretty clearly scheduled – I have segments where I focus on writing, for example, and when I write, I intend to write. I try to focus in tightly on the task at hand and get the task done. Doing it this way gives me the flexibility I want in the other parts of my day.

Well, because I work at home, many people interpret that as full permission to interrupt that writing. It’s reached the point where I actually go into something of a “silent mode” when I need to write, where I actually unplug the phone, turn off email and other services, turn off my cell phone, and close the door. This gives me at least some buffer against the interruptions that come – but they still do come, more often than I’d like.

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