Reader Mailbag #34

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 was asked for some good recipes, so here are three posts I wrote in the past with some good formulas for food.
Five great recipes for once-a-month cooking
Five great crock pot recipes
Five recipes for premade convenience foods (like burritos)

And now for some great reader questions!

I am on a small and fixed budget while I work only a few hours a week while going to college. I realize that my spending has gotten out of control, and I’m not longer excited about saving (though I do). The past few months have really turned my life upside down and I realize I’m doing a lot of spending out of grief and loss. In addition, I seem to have lost the motivation and goals I once had. I know I will eventually heal from the loss of my loved ones who passed away last month – but until then, I’m worried about my spending habits and lack of focus! Any thoughts on the subject or resources/websites you’d like to share?
– Shannon

Your best bet, without a doubt, is to find a trusted friend you can really rely on to help you get through this, especially one who won’t solve the problem by heading out for some shopping.

I’m lucky in that I have my wife to help me deal with such things and she won’t resort to spending to help emotional healing, but if it was her that failed, I have a few other very close friends who I’d turn to that wouldn’t encourage me to spend, either.

Sitting at home alone while you’re hurting will often encourage you to do things that you wouldn’t normally do. Don’t fall into that trap. It’s expensive and often self-defeating.

Here’s a question for you, Trent… how do you feel about being personally expected to bail out failing Wall St companies who knowingly made really stupid financial decisions?
– Jillian

I’m not mad at Wall Street. They’re playing the game according to the rules they’re given. The problem comes with the people writing the rules. I’m mad at the flavor of “deregulation” in Washington that has created a situation where a select few (the CEOs and the large stockholders) collect the profits while everyone else covers the risk.

Let me be clear: we have socialism in the finance industry right now, except it’s a diseased kind of socialism, where everyone bears the risk but only a select few enjoy the profits.

The blame for this falls squarely on the people who have been in charge of instruments such as the Treasury Department, the Senate banking committee, and the House financial services committee over the last twelve years or so, excluding perhaps the last few since it would have been impossible to slow the train in just a year or two.

Free market capitalism doesn’t work if the people who make risky moves aren’t saddled with the risk of those moves. That’s what we have now, and that’s a failure.

Why is it that when you finally get to a point where you can get ahead you get slammed with unexpected bills? My husband and I just recently got to the point where we are not living paycheck to paycheck. We have a small emergency fund, and have some money each month to snowball. He has even been making a lot of overtime, but since that has happened we have had two emergency room bills, my daughter had new orthodontist bills which we were not expecting, I had to spend half of our emergency fund preparing for Gustav which did not hit us too hard thank goodness… and now our dryer is on the fritz!!!
– Jen

What you’re seeing is why an emergency fund is so important. Imagine if you hadn’t built up that emergency fund and instead spent it on things like going out to eat. Where would you be now?

To me, situations like this – and they do happen to me, and to most people – are proof positive of why it’s very useful to have a healthy emergency fund. Spending less than you earn during a normal month and socking away the difference will make abnormal months – like the ones that Jen describes – much, much easier.

You talked about challenging reading a while back. I’m politically liberal and I’d like to read some serious conservative political thinking to challenge me – not the over-the-top books written by radio hosts which just makes me upset. Do you have any suggestions?
– Thomas

Try reading Capitalism and Freedom by Milton Friedman, The Road to Serfdom by F.A. Hayek, and The Conscience of a Conservative by Barry Goldwater. These books are a bit older (and sometimes specific topics are dated), but the principles and arguments for them are timeless and they will make you think.

On the flip side of the coin, a conservative can challenge themselves by reading The Shock Doctrine by Naomi Klein and The Conscience of a Liberal by Paul Krugman are both very well-written.

Also, if you’re trying to push yourself hard on your understanding of politics, read some classic writings on the subject, like On Liberty by John Stuart Mill.

The sure sign of a poor book is when a writer begins making direct attacks on the opposition beyond the arguments of the opposition. If you start reading insults, the book is rubbish and won’t teach you anything.

“For long term investment stock/stock funds are best” is something that’s heard over and over again. I’m wondering if this is a valid stmt as historic values can hardly be taken as reference. The stock markets changed rapidly over the last years, hedge funds, online-trading + realtime quotes for everyone, cfd’s, the speed and amount of money that’s transfered globally…… Do you really believe it’s still worth the risk (not only in the light of current development (lehman & co)?
– john

Do you believe that this technology has made workers less productive or more productive? Do you believe that future technology will increase productivity?

If you believe technology increases productivity, and you also believe that technology is going to keep improving, then you inherently believe that every worker is going to produce more. If every worker produces more, the value they produce will be reflected in stronger companies.

So, yes, I believe stocks will keep going up in general because companies are made up of individual workers, and the more productive those workers are, the more valuable those companies become. And since stocks are just small pieces of ownership in those companies, they’ll also become more valuable.

I’m talking in a broad sense here, not in a specific sense. Stocks will increase in value over the long term as long as individual workers can produce more work over the long term, and as more skilled workers with more technology in front of them enter the workforce, that will happen. It has very little to do with day traders or short-term stupidity in the finance sector.

Would you please tell me if an electrical oven and tea kettles suck watts? My husband thinks that our electric bill is going high because of these two items.I can’t work without tea kettle in my kitchen and am not willing to give it up. Also I was wondering about watts consumed by irons and microwaves.
– Reem

The “Mr. Electricity” site is a good source for data on the electrical usage of most common appliances. An oven typically uses about 4,400 watts, which adds up to about $0.44 per hour of constant usage. A microwave uses about 1,500 watts – about $0.15 per hour of constant use. A clothes iron uses around 1,400 watts – about $0.14 per hour of constant use.

The ten minutes or so it takes to heat a kettle of water on an electric stovetop will cost you about seven cents, in other words.

Hope that gives you some fun talking points with your husband!

How would you be able to save in a 401k plan and emergency fund at the same time if you’re a student who has to pay tuition and educational materials? Would you still adhere to the 10% for 401k plan as you suggested?
– Faye

If you’re a young student between, say, 18 and 24, you shouldn’t bother worrying about your retirement account quite yet. Your focus should be on being a student full time and acquiring a degree at minimal cost to yourself. If you happen to find yourself in a situation where you can contribute, do so, but don’t worry yourself.

However, I suspect Faye’s question comes from a person who has gone back to school after some time in a career path, either to start a new one or to improve on her current one. Given that, I’d take a strong look at your current retirement savings and see how they line up to some reasonable benchmarks, like the Money Magazine benchmarks. If you’re on pace with those benchmarks – or, better yet, ahead of the game – it’s okay to scale back the retirement while you’re in school. Focus on tuition and the emergency fund.

If you’re not quite up to snuff on retirement, don’t let it dangle. Make sure you’re at least putting enough away to get any matches your employer is offering you on your 401(k). Get your emergency fund up and going, too. If you need help, get a student loan for your tuition and pay that off later on.

I was wondering if you read any political blogs or daily news feeds. I find that I’m much better at keeping up with information in daily/blog formats & was wondering if you had any suggestions.
– Dorothy

I read tons of these online, actually. Since any news source you read has a bias, I try to read multiple accounts of and commentary on news stories.

My usual stops for actual news are Google News, the Wall Street Journal, and several other newspaper sites, and for international perspectives, I also read BBC and Al Jazeera English. I want a good grip on facts from many different angles, and I tend to not trust anything unless I find multiple clear reports on it. Of all of them, I tend to trust the BBC the most, actually.

For commentary, I read some highly left-wing stuff, like Daily Kos and Democratic Underground. I read some highly right-wing stuff like Free Republic and Little Green Footballs. I read centrist commentary like Andrew Sullivan and Glenn Greenwald. I also read Huffington Post and Politico – HP seems fairly left-leaning and Politico seems fairly right-leaning, but they both mix things and criticize both sides quite a bit.

If you start reading a mix of perspectives, you start seeing how much bias some people have out there. I think that if you get all your news from one source and you stick with that source over and over again, your thoughts start getting skewed. For example, the folks on Free Republic cannot conceive that Obama is anything less than evil, while the Democratic Underground folks tend to believe that everything John McCain does is an attempt to strangle America. Neither one is true, and I think that people who subscribe solely to one viewpoint or another is intentionally strangling their own understanding of the world.

What age is the right age to have a child get their own checking account?
– Evan

My belief is that you should get a child a checking account as early as possible. It’s a great opportunity to teach them how it works, how to write checks, how to use an ATM card, and so on. You can use the account to teach them how important it is to watch their balance and plan ahead.

The way I see it, the more time a child has to get used to managing their money in a relatively safe environment, the better they’ll be at it when they fly on their own.

I want to run for the school board in April, but I don’t know what’s appropriate for campaigning. Do you have any suggestions? You seem to be pretty into local politics.
– Manny

It’s really up to you. Obviously, if you’re interested in running for the school board, you should already have a good grasp of the issues facing your local school district at the moment and you’ve likely got an idea of how you’d like things to be.

The first step I’d take is talking about running with everyone I know in the community. Float the idea by them and the reasons you want to run and ask for their input. Use that material to hone your stances a bit. If you hear a lot of people saying the same thing, that’s something you might want to add to your list of plans.

I’d make sure I filed the correct paperwork to be on the ballot. I’d also canvass the neighborhood on weekends close to the election. Just walk around door to door, shake hands, meet people, and hand out flyers that state what you want to do. I’d also give piles of fliers to your closest friends and ask them to give them to people they know. Be sure to include the voting date and voting location clearly on the flyers.

I’d also make sure to participate in as many community events as I could, especially close to the election. Keep a few flyers with you so that if you start a conversation with someone, you can give out a flyer. Plus, your mere presence will reinforce your community involvement from people who have seen your flyer.

That’s what I’d do, anyway.

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

Loading Disqus Comments ...