Reader Mailbag #29

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.
What do you do if a home improvement project fails?
Some people HATE frugality!
Some deeply personal reflections on Your Money or Your Life
And now for some great reader questions!

What is the best way to save for both a down payment on a house and emergency funds? I have about $3300 in savings (plain old savings account), a good 401(k) with $12K (I am 29), and a credit card debt of $1600 which I will be finished paying in October.
– Valerie

An emergency fund should always be in cash in a high interest savings account. You don’t want that money bouncing up and down with respect to the ebb and flow of the stock market – it needs to be steady and reliable.

As for the house savings, it depends entirely on what your timeframe is. If it’s coming up quickly, you should keep that money in cash, either in a savings account or a certificate of deposit. If it’s still a long way off (five years or more), you should probably be investing some of that in stocks in order to have a strong chance at a solid return. I’d put at least some of it into a Vanguard index fund if I was more than five years out.

Also, I’d up my 401(k) contributions. Having $12K at age 29 isn’t a bad start, but I’d make sure I was contributing at least 10%, especially if you’re still single.

What food blogs do you frequent and/or recommend? Do you still have plans for an eventual food blog of your own?
– Tim

My favorite food blog is 101 Cookbooks, but I also regularly read The Pioneer Woman Cooks, Orangette, and The Food Pornographer (I love the photographic style).

I would love to start a food blog, but quite frankly, there’s so much to keep up with with regards to The Simple Dollar that I simply don’t have the time to do one to the level of quality I would expect from myself right now. I will say that I have been writing posts for a food blog and saving them for the time that I would be able to give a food blog the proper attention.

I have given some consideration to slowing The Simple Dollar down to one post a day and using that extra time to start a food blog, but that’s not a risk I feel comfortable taking at the moment.

What are the advantages and disadvantages of hiring a financial professional?
– Rajeev

The advantage is obvious, and it’s the same advantage you get whenever you bring in a professional to help you out with a situation: it solves a problem that you’re reticent to tackle yourself. In my eyes (and I mean this seriously), hiring a financial advisor is like hiring a plumber. In both cases, you’re paying someone to take care of a job for you that you don’t really want to do for yourself, for whatever reason.

The disadvantage, though, is that you’re trusting someone else to manage your money. You’re hoping that they’re making the best choices for you, and you’re trusting that they’re not merely making choices that would earn them the best commissions and kickbacks, but the choices that will earn you money. A fee-only advisor – or, better yet, one whose pay is based on the performance of your investments – will be the most likely to provide this.

For me, though, I’m a “do it yourself” kind of guy. I’d rather not pay someone to solve a problem that I can figure out for myself. If I don’t optimize my investments, so what? I’m still saving on the advisor’s fees, and I’m learning from my mistakes.

What would be the three main goals you would like to accomplish in either one or two terms as the President of the United States?
– John

If I were taking the oath of office in January 2009, here are the three things I would do immediately.

First, I would adopt a plan that would make our nation fossil fuel independent in ten years. I would direct every spare dollar I could, from the Department of Defense, the Department of Energy, and all science agencies within the government, to breaking our fossil fuel dependence. This is not only an environmental issue, it’s also a foreign affairs issue – we cannot trade lives for oil any more.

Second, I would have a face to face meeting with the head of every single nation that we have deemed as an enemy over the last ten years. I would offer to let them share in the results of our hard work on the energy issue in exchange for reducing or eliminating the aspects of their governance that destabilize security. We would sit down and simply say, “Right now, every sharp mind in America is working on solving the energy problems that we all face. I will gladly give your nation the results of this research if you will cease your nuclear weapons programs and adhere to a basic human rights doctrine.” Doing this would enable us to cut our direct military spending significantly, thus paying for the expenses of the fossil fuel program.

Third, I would end the “war on terror” as it currently exists. No more warrantless wiretapping. No more torture. No more denial of a basic human right to a fair trial. Our war on terror would be reduced to simply a direct, targeted hunt for Osama bin Laden and his inner circle of advisors, period, because those individuals should stand trial for being behind 9/11 – and they should receive a fair trial in an international court. Once they are captured, our boys come home.

This is what I would do. Sadly, I don’t believe either major candidate for President will come close to this.

Can you give some advice for a 20-something that has great money management skills, but finds it hard to save due to A) no incoming income because currently in graduate school B)monthly car/insurance/cell phone bills and C) basic college expenses (books, housing, etc) What would be a good way to invest the little money I have and also be able to quickly get the money back if an emergency comes up?
– Jessica

The best way to invest an emergency fund is to keep it in cash in a high-interest savings account. If you put it into stocks or something like that, the up and down bounces of the stock market have a good chance of leaving you high and dry if you need the cash at a moment when the market is down.

Sign up for an online high yield savings account (like ING Direct – what I use – or HSBC Direct) and just put your cash in there. Since it’s linked to your checking account, you can just move cash back and forth between the accounts whenever you need to.

How often when you write fiction does your outline change? I ask this because I will have an outline for my stories as well, and then the character I’ve created will wrench the plot from my grasp and go off in their own direction. At that point, I’m conflicted- do I force the story to fit my outline or let it run rampant?
– John

Whenever I’m visualizing a story, I usually conjure up three or four scenes, and then I try to flesh them out in as much detail as possible and figure out how and why they’re connected to each other. I tend to just take piles of notes about the story until I’m content with the general structure of the whole thing, then I start writing.

In other words, I don’t start actually writing the story until the whole thing is pretty well fleshed out in my mind and in my writing. I find that every time I just sit down and start writing fiction, the train goes off the tracks and I can’t finish what I started.

In Brazil, where I live, we rarely think in terms of annual income. We receive our salaries monthly, so we calculate our expenses on a monthly basis. But in the US you never think about income and expenses on those terms, and you calculate how much you earn by the hour, week or year, right? Never by the month. And yet, many of your expenses (phone, water, heat, electricity bills etc) are paid every month. Do you think that being paid every week makes Americans spend more, since it’s money coming in often?
– Lola

That’s one explanation. I really think the biggest problem with overspending in America is the incessant desire to keep up with the Joneses. American culture is inherently competitive, and people often place their self-worth on how they stack up compared to the people around them. Quite often, purchases are used to make that comparison.

From what you describe, it sounds like many Brazilians live paycheck to paycheck, which is a dangerous way to live. It seems intuitive to me that not having your billing cycle matching your paycheck is a better prod towards stopping the paycheck-to-paycheck cycle than having your checks mach your billing cycle.

Every time I make orange juice at home, it tastes terrible, much worse than even the worst store-purchased orange juice. How do you make orange juice?
– Adam

The biggest factor in the tastiness of orange juice is the quality and variety of the oranges used. There is a huge difference in the quality of orange juice you get from different orange varieties.

Most oranges that you tend to buy in the store are navel oranges, which make – frankly – mediocre juice. However, they’re very easy to grow and are reasonably sweet, so for the quality of orange for the buck, they’re the best around.

Most orange juices you buy are actually a mix of the juices of different oranges in varying proportions, usually mixing the juice of navel oranges with the juice of the harder-to-grow but much tastier Valencia oranges. Orange juice producers seek to find the perfect balance to produce a tasty juice while minimizing cost.

For me, the best juice is about 80% Valencia and 20% navel with a lot of pulp added. Just get four Valencia oranges (you can get them in some grocery stores) and one navel orange, squeeze them by hand into a bowl, scoop the flesh into that bowl, and stir it around until it’s consistent. That, my friend, is how to make a good orange juice.

If you can easily buy them, I also recommend experimenting with blood oranges, tangelos, and tangerines in your orange juice. There are some mixes that are incredibly tasty.

My brother became addicted to meth a few years ago and spent all of his money. He lost his house, his wife, his cars, his children – everything. When we were younger, he helped me out several times – he basically paid for my textbooks in college and let me live in his family’s basement for six months while I figured out what to do after college. Now he wants to move in with us. I feel incredibly guilty because I don’t want him to. I don’t trust him any more and I don’t want him living in my home with my two little children. What should I do?
– Millie

If you don’t trust a person, don’t let them live with you, period. One should never feel uncomfortable or unsafe living in their own home.

My solution would be to show that you do care in other ways. Help him with the mechanics of getting his life in order – assist with his job search and so on. Be willing to be a listening ear. Offer him financial assistance if you feel it’s appropriate.

Don’t let anyone make you feel unsafe, though. No matter what.

What are your favorite comic strips?
– Art

A nice way to close. I really only have one that I follow faithfully – xkcd, a self-described “webcomic of romance, sarcasm, math, and language,” is easily my favorite comic strip of all time. Just hit a random strip and dig in.

There are a lot of other ones out there, but they tend to lose me after a while. xkcd is simply my favorite one I’ve ever read – it very successfully matches my humor, interests, and perspective on the world.

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

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