Reader Mailbag #57

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. Several readers have asked for suggestions on stock investing. Here are three excellent books on the topic (links go to my reviews):
A Random Walk Down Wall Street by Burton Malkiel
The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf
The Little Book of Common Sense Investing by John Bogle

And now, some great reader questions!

I recently heard an auto expert say that it is no long environmentally responsible or even necessary to change your car’s oil every 3000 miles. He said to cut costs and still maintain your vehicle, 5000 miles between oil changes should be sufficient. What are your thoughts?
– Jessica

In general, newer cars are designed to work best with oil changes every 5,000 miles, not every 3,000 miles. For example, my first car, a Buick Skyhawk of some mid-1980s vintage, required oil changes every 3,000 miles on the dot or else you could easily notice the car not running as well – in fact, I often noticed things going downhill a bit around the 2,500 mile mark.

On the other hand, most automobiles made since 2000 operate quite well with oil changes every 5,000 miles. The engines are simply made differently than they used to be.

My advice? When you get a car, consult the manual and follow the advice given there. If you own a newer car, you’ll note that it likely encourages you to get changes every 5,000 miles instead of the old 3,000 mile standard.

You’ve been doing reader mailbags for more than a year now. Aren’t you running out of questions?
– Michael

Not at all, actually. I have more questions than I can possibly answer.

In a given week, I usually get fifteen or so usable questions from the weekly Reader Mailbag thread and twenty five or so are emailed to me. I filter these pretty carefully, cutting the number down to fifteen or so usable questions. I then use ten of these (pretty much at random) in the reader mailbag and either use the rest for standalone posts or save them for a future date when I need reader mailbag questions. I have literally hundreds in the archive at this point.

So, no, I’m not running out of questions. In fact, I have plenty of material to keep the reader mailbag going for a long time.

I recently sent my financial advisor an email about logging into my account view. (Side note: I have a financial advisor due to my grandmother investing in mutual funds for me since I was born, and they also have set up a Roth IRA for me.) I got a response back that kind of surprised me: “I’m going to ask my assistant, C_____, to help you with the XXXXXX Account View, then let’s talk about making some changes to get more conservative – less stocks! more bonds, cash, currencies, hedges against the downside!

My gut reaction is that it’s a little too late to hedge against the downside, and if anything, I have 35 years until retirement so it’s way too soon to get conservative. What do you think of her response?
– Hillarie

My guess would be that the advisor made that comment without properly reviewing who you are. Most likely, many of her clients are much closer to retirement age than you are and thus going more conservative might make more sense for some of them. Thus, (s)he just popped out the easy answer without thinking too much about it. Another great sign of this is the fact that the advisor is tossing your case to his/her assistant – she doesn’t want to think about it.

This is part of the problem with hiring financial advisors, particularly ones you don’t interact with face to face. In my opinion, if you’re only interacting online with an advisor, you can do it yourself without their help. You can set up your own Roth IRA. You can do your own basic investments. Investment and financial advisors really only help if they’re fee-only (meaning they’re not trying to sell you something) and they’re helping you resolve a complex situation.

My advice, Hillarie, is to take advantage of the online tools available to you, as well as all of the sources of learning available, and take control of your own financial management.

I just recently got an iTouch as a present. What apps and features do you like and use the most on yours?
– Nicole

It’s probably easiest to simply list what’s found on my home screen. On the bottom row (the home row that appears on every screen), I have RtM, Evernote, Calendar, and Safari. The rest of my home screen is composed of Facebook, Twitterific, TWC (The Weather Channel), Instapaper, Kindle, Grocery IQ, Analytics, Nike + iPod, Bloomberg, USA Today, NYTimes, Wikiamo (a Wikipedia reader), Weightbot, and iReddit.

In other words, I use my iPod Touch basically as a PDA and not as a music/media player. All of the stuff on my home screen is essentially for information gathering or information storage.

The item I use the most is RtM. Whenever I come up with something I need to do, I fire that up (whether I’m near wireless or not) and add the task. The next time I’m in wireless range, I fire it up again and it updates my tasks. Boom – easy as pie. I do much the same thing with Evernote – those two are the MVPs of my iPod Touch.

Trent – You always recommend people to invest only what the will employer match into the 401k and the rest into a Roth IRA. Why is that? It makes more sense and cents to invest the max one can deduct from their taxable income(i.e $5000 for this year) then if you have more to invest then invest in a Roth IRA or Roth 401k.
– Frugal Cubicle

To put it simply, I advise that because for most people, their tax rate in retirement will be substantially higher than their tax rate right now. Thus, it makes sense to pay your taxes on the money now (as is done in a Roth IRA) than it is to pay your taxes later (as with a 401(k)).

The biggest reason I believe that tax rates will be higher later is the state of the federal budget. Over the last decade, we’ve run things at an enormous deficit, one that’s not sustainable over the long term. At some point, we’re going to have to start balancing the budget, and the only way to do that is either to slash spending or to raise taxes – and, most likely, it will be a mix of both.

A Roth IRA has another big advantage, too – you control the investing. You can choose whatever investment house you want for your Roth IRA – you’re not forced to choose whoever your employer has paired up with. You also get much more freedom as to what investments to choose, not just whatever investments your employer has.

Pairing the two together, it makes sense that, unless you’re getting matching from your employer, you should put money into a Roth IRA before you put money in a 401(k).

Do you listen to your local NPR station? If so, do you pledge during their fund drives?
– Lisa

Yes, to both. I listen to 640 AM here in central Iowa quite a bit, particularly for Morning Edition and All Things Considered. My wife’s car has 90.1 FM as the first programmed station.

I’m a huge believer in supporting what you use with your money. We both use Iowa Public Radio a lot, so we support it with our money and our time (my wife has actually volunteered to help out with the phones during pledge drives). That’s why I’m a paid user of both RtM and Evernote – they both provide stellar services that I use on a daily basis, so I’m quite happy to support them with my dollars. I’ve even donated to blogs before – if I read daily over a long period, that site has provided me with a lot of free entertainment, and supporting that entertainer means they’re much more likely to keep doing it.

Support what you value.

I recently made a pretty bad purchasing decision which involved me opening a new line of credit at a store (online) and cost me quite a bit of money. I was tempted because of the no interest/no payments deal they had going, but in retrospect I regret spending so much. The deal expires in July, a year after the purchase, and I’m struggling to make ends meet as it is. I’m sitting on an ‘emergency fund’ that is about half of what I owe, plus I have other credit card debt as well. My job situation is bleak at best; I’m currently making minimum wage and the job market around here is horrible. I’ve tried to apply for many other various positions, but it seems that nobody is hiring. What are your thoughts on the situation? Obviously I’ve learned from my mistake and I’ve been saving diligently as much as I can, but I still can’t make ends meet. Please advise!
– Dave

Your first step should be to negotiate with all of your creditors. Call them up, explain your situation, and look for a different plan for repaying those debts. Perhaps you can get lower interest rates on your credit cards and the line of credit.

You may also want to consider selling some of your stuff, particularly the things you don’t use as much. Go through your collections, for starters, and see if you can strip them down or, even better, sell them in their entirety. You should also look at every monthly bill and see how many services you can cancel, and consider doing other things that will save you money over time, like installing a programmable thermostat. Big changes are very useful – can you go without a car, for example? Perhaps you can downgrade your living situation.

These things will free up a lot of money and should get you much closer to your goal.

For your online business, how do you go about doing all of your taxes? Did you setup an LLC or something similar?
– Richard

I have a single-member LLC. The income I receive from that is simply taxed as personal income. A LLC does not file taxes for itself – instead, the income it generates is passed onto the members, and since I’m the only member, that means me. I do the taxes in TurboTax – easy as pie.

In fact, the whole process was pretty simple. It didn’t take much time at all to set all of this up.

Ok, I just read the MSN “Getting by on…..” series, and I want to puke a little bit.

The “Getting by on…. $400,000 a year couple” just blew my mind into bits. Especially the caveat “$400,000 may SOUND like a lot, but remember, in Kansas that’s only $180,000.” OH! Thank you MSN! Now thanks to that example I can finally see the poverty they are living in, struggling to raise two whole kids.

Anyone else read it and have the same reaction? Or am I just being classist here?
– Sophia

All I have to say is this: it is much harder to cut your spending than it is to increase it. Once you’ve become used to spending at a level equivalent to your income, cutting that spending is very psychologically difficult. Many people (myself included) need some sort of wake-up call in order to make changes, and for some, that wake-up call has to be pretty severe.

It’s very easy to feel outraged about the situation that those people find themselves in, but think about it this way. Imagine if you had two kids in a private school where they had built up a ton of friends and felt very comfortable and happy. Would you want to pull those kids out of that school and put them in a local public school where they didn’t know anyone and the quality of education would likely be lower? I can say that I would find that choice very difficult, indeed.

Cutting your spending is a challenge, whether you’re cutting $400,000 to $380,000 or cutting $20,000 to $19,000. In both cases, you’re giving up something that’s important to you.

Have you ever tried RAGBRAI?
– Monica

No, I haven’t. It’s a pretty serious ride – 80 mile legs or so – and I’m simply not good enough at bicycling to keep up with legs like that. I have several family and friends that have participated, though.

For those unaware, RAGBRAI stands for the Register’s Annual Great Bicycle Ride Across Iowa. It’s an annual leisurely group bicycle ride across the state of Iowa during the summer, with legs beginning and ending in towns of various size in Iowa. For people who are avid bicyclists, RAGBRAI can apparently be an incredibly good time – the stops along the way apparently turn into pretty entertaining parties, often sponsored by the towns themselves. Check out the website if it sounds interesting.

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

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