Reader Mailbag #42

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. Here are some Christmas thoughts from years past on The Simple Dollar.
The Day After: Six Ways to Deal With the Post-Christmas Money Blues – And Plan Ahead for Next Year
Christmas, Money, Family, and Love
Twelve Great Gifts Under $10 I’d Love To See Under My Tree

And now for some reader questions!

This might be a very naive question because I don’t really understand how small business taxes work, but if you are taking in income from TSD as a small business, don’t you have to pay taxes on it twice?
– Nick

Not at all. The Simple Dollar (and a few other related endeavors) is organized as a LLC, which basically means that I report all income from it as personal income on my income tax returns. LLCs are an effective way for self-employed individuals to manage their business efforts without sinking into the challenges of corporate taxes.

LLCs have their limitations, however, and if I were to attempt to grow The Simple Dollar into a larger business structure, I’d likely have to change that status and begin doing effectively as you say – pay taxes on the business profits as well as my personal income. Most smaller businesses tend to find a good division between the two – rolling some of their profit back into the business while paying themselves some of the profit.

Veteran’s Day, Columbus Day, and the like are days many businesses are closed. If you were still a 40 hour stiff you’d likely have them off like I do. Do you remove yourself from work on these days as well for a break or do you generally work through them? I ask, because as a writer who works full-time, I use it as a time to catch-up.
– the weakonomist

My holidays are defined basically by my wife’s work schedule. If she has a day off that’s a holiday, then I take it as a holiday.

The exception comes during her extended summer break – she’s a teacher. During that period, we plan for certain periods of vacation, but outside of that, I work as I normally do. This is usually for the best, because she’s usually involved in a bunch of her own activities – taking classes, doing small home improvement projects, and so on.

I have a 20-year-old grandson who just got a good-paying job. He is considering returning to college, but isn’t attending right now. I see him being a bit extravagant with his new earnings. But I still think he wants to be more financially responsible. Can you recommend an easy-to-read book that would appeal to a 20-year-old male that could help him manage his finances? Thanks!
– Christine

Significant changes in personal finance behavior usually do not happen unless the person is self-motivated to make the change. Although you’re making a good move in making the information available to him, it’s really going to be up to him to read it, absorb it, and make the change.

That being said, I’d look at a number of different books, depending on his personality. Automatic Wealth by Michael Masterson seems like a solid fit based on what you’ve said. You’re So Money by Farnoosh Torabi might also be a good match.

There is something basic I don’t understand about economics. Why are people always encouraged to spend? And given loans to do so?
– WhirlMind

That’s capitalism in a nutshell. Capitalism is the trade of goods among people and groups for the purpose of producing profit. If each trade of goods results in a small profit for a group, then the more trades that occur, the more profit they can earn.

Since we live in a capitalist society, our economy thrives on trades – the more, the better. Thus, people are encouraged to spend, as are businesses. The more transactions that occur, the more opportunities individuals and businesses have to profit from those transactions.

Do you have any suggestions on how to save money when renting cars?
– Jon

Get only the car you need, nothing more. That’s the biggest way to save money when renting a car. Many people like to rent a more luxurious car than they actually need – but they pay out the nose for it.

Besides that, most car rental places like to ding you with extra fees: CDW (collision damage waiver) fees, deposits, airport surcharges, drop-off fees, fuel charges, mileage fees, taxes, underage driver fees, second driver fees, out of state fees, equipment rental fees – they’ll fee you to death if they can. Because of this, it’s useful to get quotes in advance, so you can compare the fees, and you can also often negotiate away some of these fees.

Never leave yourself standing in an airport at the mercy of the car rental desk or you’ll find yourself paying out the nose.

Have you made any progress with your dreams of writing fiction?
– LadyAnn

I attempt writing fiction every once in a while, but I haven’t yet made a move to publish anything. I genuinely feel like I need more practice at fiction writing, and the only way to do that is to write, write, and write some more.

In some ways, I made the mistake of starting The Simple Dollar without sufficient practice at writing nonfiction and many of the pieces here have suffered because of that. Since I have time, I’m going to take it slower with the fiction, working out the kinks on my own before throwing it out there.

Is the cost of an Ivy League education worth it? What’s your take?
– B

I think it largely depends on your profession. Some professions – like business and law – tend to be heavily defined by the people you know and the name on the degree, whereas degrees in other fields – like MIS, for example – don’t rely nearly as much on the institution.

The big rule of thumb is this: how important are connections and interpersonal relationships in the career you hope to have? The higher the importance of connections, the more worthwhile an Ivy League education will be.

You caught a lot of flak (and generated a very interesting conversation!) a while back for going to a bookstore and reading a passage from a book you were interested into a recorder instead of purchasing the whole book. Has publishing your new book changed your perspective on that action? And congrats on the book!
– Anne

My perspective hasn’t changed a bit. I encourage people to walk into a bookstore and read through my book before buying it, and if they see only one tip of use, feel free to just keep that one in mind. If my book is not of use to you, don’t buy it.

For me, if I find a piece of information in a book that’s really useful to me, I have a very high tendency to go back and eventually purchase that book. The book has already shown that it’s useful and contains valuable thoughts and information. On the other hand, buying a book blind sometimes results in a book that doesn’t really pan out – and then I’m left holding a subpar book that doesn’t have any real use for me.

You said: “Two months’ worth of family living expenses for every dependent listed on your income taxes. That’s the rough rule of thumb I use.” I think you’ve said this before, and I don’t get why it wouldn’t just be “X months”, and only the dollar amount would change based on how many people you have. Why do dependents come into play?
– SP

Generally, dependents are unable to earn a wage for themselves to help pay the bills. You are responsible for paying the bills that they accrue – putting food in their bellies, clothes on their backs, and school supplies in their hands.

Because they’re unable to go out and earn in a pinch, you have a greater responsibility than you had before the dependents appeared on the scene. You are responsible not only for your own needs, but for their needs, too, and their needs won’t be magically covered by their income.

Since you’ve moved from one income covering the expenses of one person to one income covering the expenses of multiple people, you have a greater responsibility. Having a longer-term emergency fund is one very effective way to handle that responsibility.

Do you really believe being cheap will make your life better in the long run? Whenever I go cheap, I feel cheap and it’s not worth it.
– Carl

No, I do not believe being cheap will make my life better in the long run. I do think that putting concerted effort into figuring out what exactly it means for me to be cheap and attempting to work on a better definition of what is “enough” in my own life is a valuable activity, though.

The next time you feel “cheap,” ask yourself why. Why do you think of this activity or this item as cheap? Is it because of marketing? Is it because you have standards that are unnecessarily high? Is it because you are made to feel better by frivolous features?

The more you reflect on such questions, the more you realize that “cheap” is often just something you’ve made up in your own mind to limit yourself.

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

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