Reader Mailbag: Hair Cutting

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. When to dump a car
2. Comparing home features for energy
3. 401(k)s, IRAs, and taxes
4. Cultural events, cheapness, and children
5. Blogging for money
6. An accountant for taxes
7. Trent’s spending traps
8. Building up credit again
9. Switching companies on their dime?
10. Calculating meal prep costs

I’ve recently switched back to cutting my own hair using clippers. It’s pretty straightforward to do it.

Why did I switch away? For a while, I wanted to wear my hair longer, but cutting it myself when longer always looked atrocious.

That time has passed, so the clippers have re-emerged. It’s incredibly inexpensive, pretty easy to cut, incredibly easy to wash and maintain, and looks just fine.

Q1: When to dump a car
I have 2004 Jeep Wrangler in super condition, with low miles comparably for the year (approaching 70k miles only). My wife and I commute into NYC by train everyday, so we don’t drive during the week unless its to run a local errand or two. On weekends we use the car, of course, to get around and go places (which is where the majority of the logged miles come from).

Question: I’m very close to paying off the loan (I have about $4k to go) so it’ll be paid for by the end of the summer. But, as is true of all Wranglers, the gas mileage isn’t great. Should I hold onto the car, pay off the loan and save for a year and then perhaps buy second, more fuel-efficient car? Do I try and sell the Jeep for as much as possible, and then put that towards the purchase of a new auto (but incur a new loan)?
– Karson

It really depends on how much you drive it and how much cash you have.

For example, if you’re driving it an average of about 8,000 miles per year, which is what you get when you divide 70,000 by 8.5 (the time since the car was new), you’re burning about 500 gallons of gas a year, costing you somewhere around $1,750 a year in fuel costs. If you switched it for a car that gets, say, 32 miles per gallon for that same mileage, you’d save about 250 gallons per year, saving you $875 per year in gas. On the other hand, if you bought it used with very low mileage and are using it more than that, you’re going to save more per year. If you use it less than that, you’re going to save less per year.

Now, if you switch to a new car right now, are you going to be forced to make payments on it? If you are, then you’re probably better off sticking with the Jeep because the $875 you save in fuel costs will largely be eaten away by interest on the car loan (depending on a number of factors, of course). If you can pay cash for the replacement (including your trade-in), then you’re looking at a different story and you should trade in sooner rather than later.

So, if you have cash on hand or you drive the vehicle a great deal, you should trade in sooner. If you have low annual mileage and little cash on hand, I’d wait.

Q2: Comparing home features for energy
I have a question about energy costs in homes. My husband and I are going to be looking for a new home soon and the area we’re looking in has a wide range of house options. These houses were built during different eras starting in the 60s through the 90s and have very different options. For instance, there’s a newer subdivision that was built in the 90s where almost all the houses have vaulted ceilings. Some of the houses were built in the 60s and have baseboard heat. Some houses have swamp coolers while others have air conditioners, whole house fans, or nothing at all. I’ve always heard that vaulted ceilings are huge energy wasters. However, I’ve also heard that newer buildings have been built for better energy efficiency. Do you know or have you run across resources discussing the pros and cons of various features that affect energy usage in the home? Is it more realistic to ask for average heating/cooling costs in the houses we’re interested in? My concern with this method is we may inadvertently compare people who set the heater to 68 degrees with people who set it to 78 which seems like it’d make a big difference in cost. I don’t have a feel for how much any of these differences cost so I don’t know if I’m talking about pennies, or dollars, or hundreds of dollars.

– Virginia

There are an almost infinite array of factors that influence the cost to heat or cool a home. How well is the house insulated? What is the external climate like? Is it hot? Cold? Humid? Dry? What are the architectural features of the home? What type of furnace or air conditioning unit do you have? What temperature tolerance do you have? Are there trees around the house to block sunlight?

Even if you controlled for all of those things, you’d still be hard-pressed to make an estimate as to the heating and cooling cost of the home.

If I were you, I’d simply shop for a home you’re happy with while keeping an eye out for a few obvious things (trees blocking sunlight, for one). Then, when you’re in the home, look into making some minor changes that will save you money on heating and cooling, such as better windows, air sealing, and additional insulation.

Q3: 401(k)s, IRAs, and taxes
If I max out my 401(k) but also have an IRA for a given year (say, 2012) and my income is greater than the limit for which the IRA is deductible (using these limits as a rough guide http://en.wikipedia.org/wiki/Traditional_IRA), will I also have to pay taxes on the IRA money in retirement? If not, how will I prove (30+ years in the future) that I already paid taxes on the money and withdrawals should be tax-free?

– Kelly

If the money you pay in now is nondeductible, then you don’t have to pay taxes on that money when you withdraw it from your IRA at retirement age. You don’t get double taxed, in other words.

The trick is that you have to be able to demonstrate that you’ve made nondeductible contributions over the years. To do that, you have to keep track of every nondeductible dime you’ve ever contributed. Just keep careful documentation of all of this along the way.

You’re still going to have to pay taxes on any contributions you deducted earlier on as well as your gains, but keeping good records now will save you tax dollars later.

Q4: Cultural events, cheapness, and children
How do you find inexpensive cultural events that are appropriate for the whole family? I find that everything is either completely inappropriate for my children or is going to cost an arm and a leg. I’d rather just stay home!

– Debbie

For starters, look to towns near you that have a large university in them. These towns tend to have quite a few cultural events that are quite family friendly for free. We’re lucky in that we live vaguely near Ames, Iowa (home of Iowa State University) and Des Moines, Iowa (home of Drake University) and both cities often have wonderful free cultural events.

Another great tactic is simply to be patient. Keep a careful eye out for discounts and “free” days for families. Many museums and theaters do these kinds of things, but you have to be aware of them. Sign up for mailing lists.

I also keep an eye on many of the community calendars of towns near us. There are events of all kinds going on all around us, so we’re just selective for family-friendly events that aren’t costly.

Q5: Blogging for money
I stumbled upon your site and I can’t stop reading your articles. I’m especially interested in how you got to where you are with your website. In your story you mention that you were able to quit your job because The Simple Dollar was beginning to generate enough income. I have been wanting to do just that but have no idea how to generate income from my website/blog.

I’ve read your articles about this topic from 2009 and was wondering if you have anything new to add. Googling this topic gives me a lot of ‘get rich quick’ schemes so I’d like to hear from a real person.
– Lindsey

There are a lot of ways to generate income from a blog. You can sell advertisements using services like Adsense. You can include affiliate links in your posts so that if people follow up on things like a book review, you get a small fraction of the book sales (look at Amazon Associates). You can also sell paid posts to advertisers who would love to buy some of the content space on your blog.

The problem is that these routes don’t earn much money unless you have a lot of traffic. A new blog with really good earnings can bring in, say, $5 per 1,000 page views. Now, for a new blog, it takes many days to earn 1,000 page views – a week or two. That’s not much compensation. However, if you’re bringing in 1,000,000 page views a month, that’s $5,000 a month.

In other words, it’s all about the traffic. If you can get a lot of people reading your blog, there will be many ways to earn money off of them. However, without a lot of readers, you just can’t earn a lot of money.

Q6: An accountant for taxes
I’m getting started on my taxes and was wondering if I should hire an accountant. In addition to my day job, I’m involved in a small project with some partners, which has untaxed revenue in my state, but has business expenses I might be able to write off. What are some reasons why people hire accountants to do their taxes instead of doing it themselves? In the past, I’ve always just used off-the-shelf software to file my taxes, but I’m not sure if it would be worth the cost of paying an accountant in my current situation. What do you suggest?

– Kevin

People often hire accountants when they don’t want to deal with the off-the-shelf software or find themselves with complicated situations that they’re unsure how to navigate on their own.

My parents, for example, have an accountant to handle the taxes from my father’s collection of side businesses and side incomes. They’re just concerned about doing it themselves, though I’m pretty sure TurboTax could handle it for them.

If you feel confident in your ability to input everything in an off-the-shelf tax package, then I’d just use that. If you don’t feel confident, an accountant will set you straight. I don’t think either one will steer you wrong.

Q7: Trent’s spending traps
Are there any things that you are constantly tempted to spend money on? How do you avoid spending money on those things?

– Mike

My biggest temptations are Kickstarter (I love helping budding entrepreneurs), board games, and books.

I handle the board games and books by doing lots of trading, and I also mostly buy used items. This keeps the cost very low.

I manage all three of them by issuing myself a pretty tight spending allowance each month. I keep my spending under that total, regardless.

Q8: Building up credit again
My wife and I are at a point where we want to build good credit. We have followed your counsel, eliminated debt, and cleaned up our credit as best we can. When we started, our scores were 427. We are now at 572. We want to buy a house suitable for our needs in 1 year. we have 4k available to get secure cards and/or secured loans. (we have 3 mo emergency fund of 9k). What can we do to have improved scores in that time frame? Also, if i get cards, do i get one for my wife and one for me, or one for both (will they report for both of us on one?).

– Ron

You’re definitely on the right track. However, with your current score, you’re still not going to be eligible for a prime mortgage. Patience is really the key here.

One step I would certainly take is to start scouting credit unions and financial institutions in your area for mortgage potential, then focus on building credit using that institution as your source for the credit. This builds you up as a customer there. One thing I would strongly urge you to look for is a bank that does manual underwriting on mortgages, meaning that they don’t just rely on credit scores to decide if they’re going to lend to you or not. Just ask them if they do manual underwriting when investigating them.

If I were you, I would get separate cards for each of you, then add the other as an authorized user on each card. Some banks report authorized users to credit agencies, while others do not. You can ask about specific policies from your bank to be sure.

Q9: Switching companies on their dime?
The company that I work for is looking for people to volunteer to leave the company. They are offering 2 weeks paid for every year of service + 6 months cobra paid+ they have hired an outside staffing company to help you find a job etc. I am 32 years old with a 7 year old child. My husband lives overseas and wants me to move there with him with my son. I have 30K in an emergency fund and no debt, plus I have been with this company for close to 13 years so I would get bet 5 and 6 months severance.My question is what would you do ?Should I take the package,since there is no guarantee that I will still have a Job after MAR 2013,or should I just stick around until next year and postpone my move overseas,to be noted that they might not be another package if I wait. Also my husband lives in Italy,so there is a pretty good chance that I would not be able to find a Job over there right away.The other issue is that right now my hours are horrible and I pay close to 1000.00 dollars every month for child care for my son after school. I am so confused is not funny.. Please help!!! I have been reading your posts for a number of years and I know you will not stir me wrong.

– Megan

I would take the package and move to Italy.

First of all, you do not have long-term job security there. If you leave now, you get six months of income, plus a year of not spending $1,000 a month for child care, plus you’ll have twelve months of opportunity to find work, plus a full year together as a complete family. If you wait a year to leave, you’ll have a year’s worth of income, but you’ll have lost $12,000 in child care costs plus a year’s worth of job searching plus a year as a complete family.

Looking at the two options, the choice would be absolutely clear. Go for the family, the reduced child care costs, and the time to find a new job. Even if you don’t find work, the other rewards will make up for it.

Q10: Calculating meal prep costs
My employer offers lunches at the canteen for a moderate price. That includes the price of the ingredients, the preparation and the washing of the dishes.

I want to calculate what it costs me to prepare a meal myself. As I compare prices at different warehouses, I can calculate the price of the ingredients.
– Jeff

Beyond the ingredients, the real issue with meal preparation is time and effort. Everyone values those things differently.

You have to ask yourself what exactly your time is worth outside of work. Are you willing to do a task at home to save $10 per hour (in after-tax money)? $20 per hour? What is your time worth to you?

Once you know that, then you can easily figure out the value of the compared meals. If you decide your time is worth $10 per hour in savings and you can prep the meal in thirty minutes, add $5 to the cost of the meal you prepare and compare it to the canteen.

If you’re merely taking leftovers, then you’re really only looking at a bit of extra meal prep time (for the time spent making extra food), the time to package it (a minute or so) and the time to wash dishes (a minute or two). This is why many frugal people tend to take leftovers to work for lunch.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Loading Disqus Comments ...
Loading Facebook Comments ...