Reader Mailbag #81

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.

I know that predicting the market is impossible, but different people are saying drastically different things about where they predict the stock market to go in the next year or so. What do you think will happen?
– Vern

First of all, what I’m about to say is solely my own opinion, founded on reading a lot of economics books over the years and reading publications like the Wall Street Journal and The Economist. This is my own opinion and not an expert one.

That being said, I think the economy is turning around, but I don’t think we’re going to return to the economic freight train of 2003 to 2007 any time soon. Instead, we’ll recover slowly. Unemployment will remain high for quite a while compared to 2003-2007, but low compared to other periods in history.

The biggest danger, as always, is finding a healthy balance. I don’t think spending money like it’s water is a good thing right now – but it’s never a good thing. Similarly, I don’t believe that buying bullets and guns and hiding in your basement is a great answer, either – but that’s never a great answer.

Balance, my friends, balance.

Trent, since part of you income is from ads on the site, it would seem that people that read the Simple Dollar via RSS or email would cause you to loose income, is that not the case?
– Bob

There are small ads on the RSS and email feeds, but they earn me less than 1% of my income.

Even given that, my belief is that sending out my writings via emails and RSS is well worth it. Why? It keeps readers interested. Many of those readers click through to the site to read the comments. Some of them open up only one email a month – but that one email might get them to visit the site.

To put it simply, having a reader is better than not having a reader, even if some readers earn me more revenue than other readers (even here, we’re talking about fractions of a cent per reader).

What do you consider a more valuable investment in your child’s future: a tutor now or a college education later?
– Jim

A tutor now, undoubtedly. The best thing I can give my child isn’t covering their tuition bill. It’s doing everything I can to ensure that they can actually learn and grow on their own and then ensure that I’m not a burden to them later on.

If a child has the skills to learn and the desire to push forward into self-learning, I’m not too worried about their college career, actually. A child that can push forward on their own will find a way to make it happen.

My responsibility as a parent is to teach them how to do this and instill that desire in them. Thus, my key period as a parent is right now, teaching them how to do this (and getting help if I need it), rather than writing a tuition check later on.

Do 401(k)’s really charge fees? I understood that funds charge fees, but I never realized that the vehicles themselves do. Could you clarify, Trent?
– The Frugal New Yorker

Most 401(k) plans charge rather high fees on the funds you can invest in within the 401(k). 401(k) program fees are usually covered by your employer.

The reason I tend to be wary of just using your company’s 401(k) is that often, a company will sign up for whatever 401(k) plan is cheapest for them. Since the company is out to make money, they’ll get you on the funds themselves by charging high fees there.

Not all companies do this, of course. You should always check the funds offered by your company’s 401(k) and see whether or not they charge high fees. Anything over 1% or so would start to set off warning bells in my head.

I have a question regarding the book Get A Financial Life, which you recently reviewed.

In it the author recommends maxing out your 401k up to the company match, and then investing any additional in a Roth. I am currently putting 10% of my income into retirement with contributions between my 401a and 457b plans. This is 2% over the max contribution my employer provides.

Should I take that 2% and open a Roth, or should I just leave it be? It seems like an insubstantial amount of money to go through the trouble of opening a separate account, but if the benefits are worth it I would have no problem doing it.
– Trey

Whether the effort is worthwhile really depends on how old you are. The younger you are, the more worthwhile it is to make the move.

Why? If you’re younger, you have more years between now and retirement – and that means more years for investment growth. Thus, the decisions you make early on have bigger tax implications at retirement than the decisions you make later in your career.

If you’re sixty, I wouldn’t worry about it too much. If you’re twenty five, I’d definitely get that Roth IRA opened up (I use Vanguard for mine) and start pumping money into it.

Why do you link to such awful articles in your roundup? Some of that stuff is completely in opposition to what you talk about on The Simple Dollar!
– Lily

I don’t link to stuff simply because I agree with it. If I did that, the roundup would be a chorus of echoes – quite boring.

Instead, I link to stuff because it forces me to think and re-evaluate my beliefs and ideas about personal finance, careers, personal growth, and so on.

Sure, I often link to articles I agree with. But almost as often, I link to articles I disagree with. My only criteria for linking is that it makes me think. If I find the ideas crossing my mind later in the day after reading the article, it’s likely I’m going to link to it.

Trent, to what extent does “knowing your audience” affect your blog posts? I mean, you’ve got a pretty niche market- most people I know would consider it some kind of punishment to read through a financial blog “for fun.” So do you pretend to write to the “average adult American” or do you recognize that your audience is typically more financially responsible than the average American, or at the very least, intending to be more financially responsible than the average American currently is.
– Tim

I don’t “pretend” to write for anyone.

I write for several audiences. I write some that are obviously for the longer-term readers, the ones who are pretty skilled in frugality and have their financial lives in pretty good shape.

I write for people who are in the midst of their turnaround and often have a religious fervor about debt repayment.

I also write for people who are suddenly realizing their precarious financial situation and are desperately Googling for help.

I don’t write for people who have no interest in reading The Simple Dollar. On the occasions when I write “devil’s advocate” posts, I’m mostly trying to reach the people who are in that last group, the ones who are rethinking their assumptions about their life and how they spend money.

I’ve got my money in order. I’ve got my cooking skills in order. The one thing in my life that is never in order is cleaning/organization. It’s something I constantly struggle with, the way others probably struggle with money. You seem to have it together in nearly every way … I’m curious what you to do conquer household cleaning and organization, if you care to share in the future.
– LDH

For one, I’m a big believer in “dirty floors and happy children.” Keeping a perfectly clean house comes in way behind spending time with my children. Sometimes, that means the house is a mess, with some dishes in the sink and some toys left out in the living room and a kitchen floor that needs to be swept while I’m out in the yard playing with the kids, but that’s a compromise I’m completely happy with.

I don’t really view it as a struggle. I make sure to keep ahead of the things that are really important, like clean laundry and such, but I honestly don’t sweat the details that much. I make an effort to keep the rooms where guests visit pretty clean so that I’m always happy to have guests over.

I think it comes down to a values thing. Step back, look at your life, and ask yourself how important a spotless house is in the big scheme of things. For me, it’s simply not that high on the importance list.

What type of life would you lead when you finally do retire many years down the road?
– Studenomist

I want to write novels and short stories at my own convenience, when the muse strikes me. The rest of the time, I want to be living on a patch of land out in the country with a big garden and a barn, with perhaps a bit of small-scale livestock (a couple cows, a goat, lots of chickens). I’d like to spend at least some of my time working for some charitable causes, and I’d like to be able to spend several weeks a year living in another country – not hitting the tourist spots, but living in an apartment out in an area far away from the tourists.

That’s the life I’d like to lead. It’s pretty much what I’ve always dreamed of.

It still seems really far away, but it doesn’t seem as far away as it once did. I’m taking steps toward that dream every single day.

I’ve been reading your blog entries for several years now. And this is the first time that I’ve had a question that I’m not sure I can answer on my own. I just graduated from grad school in May, and I’ll need to start repaying my student loans in a few months. The Dept of Eduction is offering a 0.25% rate reduction for enrolling in Checkmate II, their automatic payment program (i.e., they withdraw the monthly payments directly from your checking or savings account). Although the brochure indicates that it’s totally “safe” and “secure”, I’m a bit wary. With a credit card, I know that I can dispute any unauthorized charges. But if they empty my checking account inadvertently, I’m guessing that it’ll be very difficult to convince the bank to reverse the charge. Can you think of any other advantages or disadvantages to setting up automatic payment? Is the 0.25% rate discount worth the risk?
– Jennifer H.

I used this very program for several years with no problem.

It’s in the federal government’s best interest to be as accurate with this as they possibly can. Once an automatic payment has been set up – whether it’s with the federal government or any large business – the cost of them messing up such a payment simply isn’t worth it. It’s a lot more worthwhile for them to build careful, redundant systems that basically eliminate such erroneous billing.

Basically, I trust automatic payments, as long as they’re executed by a business or organization larger than a mom-and-pop shop. Those businesses and organizations execute lots of payments a month, and it’s simply not worth the risk for them to not do it as carefully as possible. It has lower risk, in my opinion, than me manually writing checks or manually doing online bill pay.

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

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