Reader Mailbag: Participation

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. Small business advice
2. Cost-effective couponing strategy
3. Living paycheck to paycheck?
4. 401(k) withdrawal advice
5. Husband cheating – what now?
6. Old toothbrushes
7. Roth versus Traditional IRAs
8. Nervous about food pantry
9. What does “frugality” mean?
10. What does “fee based” mean?

Whenever there’s a new activity available, my children are usually enthusiastic about participating. Soccer season? Sure! Taekwondo? Yes! Piano lessons? Absolutely! Ice skating? Let’s do it!

The problem comes when they overlap. Spring is coming, so my son asked about soccer. Is there a soccer season coming up? Yes, there is, but the games conflict with something you’re already doing.

Compounding this is the fact that I want them to have multiple free afternoons and evenings each week to explore things on their own. I don’t want them to have an overbooked life.

It’s a balancing act. Sometimes, I feel like they’re in too many things. Quite often, though, they want to be in more things because they seem interesting or their friends are in it. It’s a trick figuring out how much is too much.

Q1: Small business advice
I am a simple card and canvas artist. I have $18000 in savings and mutual funds. No debt. Now I am trying to build up cash reserves even more.

I launched a business for my cards last month. My cards are sold in 6 shops. The business is already profitable, though small.

What is my next step?
– Sam

It sounds to me like you found a niche. From this story, I’d assume you have some form of steady income beyond your card sales and now that the cards are generating income, you’re wondering how you should divide your time.

Unless those six shops are selling your cards hand over fist, I’d still keep this as a side business. I would spread your radius of shops that sell your cards and use the sales numbers from other shops to show that they really do sell. To get your cards in six shops, you must have a good arrangement that retailers like in terms of splitting the income from the cards, plus you’re making a profit, so that’s a very good sign.

Keep the model you have and visit more stores. If you find that you’re having difficulty keeping up with making the cards, spend some time focusing on ways to increase your output without reducing quality. Are there simple mass manufacturing options you can use that utilize your art?

Don’t jump on this full time unless you have a hefty contract of some kind. Be patient with this. It can be tempting to make the leap into something that looks promising, but many promising things end up collapsing.

Q2: Cost-effective couponing strategy
Whenever I look for coupons, I either end up grabbing coupons on stuff I don’t buy or on name-brand versions of things I buy generic. The real actual money saving coupons don’t add up to much. Is there something I’m missing?

– Andrea

That’s actually pretty accurate if you just save coupons for your next grocery store visit. I use a different strategy.

I just go to coupon sites like Redplum each week and download all the ones that will save me money on things I would already buy. If it’s realistic for me to buy it, I download it. I take all of those coupons and toss them in an envelope, then walk away from it.

When I make up my grocery list, I usually base it heavily on sales in the grocery store flyers. When I finish that list, I’ll compare it to coupons in that envelope. While I’m going through it, I toss out coupons that are out of date.

Often, coupons come out and then match up with store sales a few weeks later. I’m not sure why this happens, but if I clip a coupon on the first weekend of the month, there will often be a store sale in the fourth or fifth week of the month (or early in the next month) that uses the coupon. That usually makes the coupon worthwhile, but I still stick to only clipping ones I might actually use, mostly for household and hygiene products.

Q3: Living paycheck to paycheck?
What does it mean to live “paycheck to paycheck”? You say 72% of America does this but what does it mean and where does that number come from?

– Larry

I used to use 72% as a measure from earlier studies, but the most recent estimate I’ve seen is that 76% of Americans live paycheck to paycheck.

That means that 76% of Americans have less than six months of living expenses in savings. That excludes credit, retirement accounts, and homes. It’s money that people can easily access without money.

Some may not view that as living “paycheck to paycheck,” but I’d argue that it’s a pretty good definition. If you don’t have much cash available to you and you lose your job and have trouble finding employment, you are going to be facing big problems pretty quickly.

Q4: 401(k) withdrawal advice
My husband and I have 401Ks from like 5 different jobs that we’ve had in the past, scattered all over. It’s a big confusing mess to me and i want to get the money out of those and consolidate it all into one big index fund (online, with Vanguard). How do i get the money out of the existing 401Ks, what do i need to know about that process, and what should i watch out for?

– Sarah

If you want all of that money in one place at Vanguard – which, I’ll agree, is a great place to have your money – the best move would be to open a traditional IRA there and then roll over all of the 401(k)s into that new traditional IRA.

Vanguard does a really good job of helping people with this process (if you’re rolling into Vanguard). Here’s their guide for the process.

There are a lot of specifics that you’ll have to work through, but Vanguard will help walk you through them. Mostly, it comes down to signing a bunch of different forms unless you have something unusual; if the money never touches your hands, you shouldn’t face any taxes on this.

Q5: Husband cheating – what now?
I recently learned that my husband is having an affair. I know enough to not react to this in the heat of the moment but what steps should I take to protect my money from him?

– Tammy

First of all, I’m assuming that you’ve already emotionally decided that you’re leaving the marriage. If you think that reconciliation is possible, you really should give that a shot. That’s a personal decision, however.

If you’ve decided that you’re going to divorce him, the best single article on advice for this situation I’ve ever read is this one from the Huffington Post. That is a spectacular divorce preparation checklist if I’ve ever seen one.

I actually think you’ve already done the best thing. You didn’t explode and do something emotionally irrational. That’s a huge positive move.

Q6: Old toothbrushes
Whenever I go to the dentist, I ask for an extra toothbrush when they give me a goodie bag at the end of the visit. My insurance pays for a visit every six months, so I make sure to do it.

I replace my brush every three months, but I save the old ones. It is a spectacular tool for cleaning in tight spaces. Put a bit of Soft Scrub on one and you can get faucets and the edges of things really clean. A toothbrush that’s too worn for your teeth can still clean household spots really well.
– Anna

Assuming that you thoroughly clean the toothbrush when you’re done with it, this is actually a pretty good idea. I do it with my own brushes, actually. I wouldn’t want to use someone else’s used brush, but I would have no problem using my own if it was thoroughly cleaned.

Instead of using SoftScrub, though, I’d suggest using a mix of three parts baking soda, one part liquid soap, and just enough water to make it into a paste. This cleans really, really well and is dirt cheap.

Just make some in a bowl, rub your brush in it, then clean what you need to clean.

Q7: Roth versus Traditional IRAs
I know Roth vs traditional IRAs are a subject that gets beaten to death, but I wondered if you had any advice for my situation. I want to contribute $5500 to an IRA for 2013, but I’ve been waiting to get all my tax documents together to see what the tax implications of the traditional vs Roth decision would be. If I contribute to a Roth IRA, I pay more income tax and just barely fail to qualify for the Savers Credit for low income earners. I would end up having to pay an additional $70 in taxes for 2013.

On the other hand, if I make a traditional contribution, this lowers my income tax substantially and I now qualify for the Savers Credit. Between these two things, I would get a refund of about $950. ($750 from lower income taxes plus $200 from the Savers Credit)

I’m debt free and not anticipating any large expenses in the near future, so the plan would be to put the entire refund into my IRA in 2014. I’m not sure if I will be able to make the full contribution to my IRA in 2014, a lot of the money I am planning to contribute this year has been in savings for over a year, from when I had a higher paying job. If it has any bearing on the situation, I’m 28, have never contributed to an IRA before, have an emergency savings account with probably about 9 months living expenses, and also contribute to a 403(b) on a Roth basis through work.
– Roger

This all seems reasonable. If I were in your shoes, I’d contribute just enough to a Roth IRA to get you right up to the line, then contribute the rest to a traditional IRA.

It’s debatable as to whether or not you would save more long term by using one type of IRA over the other, but it’s really difficult to make a case that one is so superior for you as to turn away $200 cash in hand for keeping your after-tax contributions low.

Good work!

Q8: Nervous about food pantry
I am worried about using the food pantry in my town. I am afraid of getting a bad reputation for going there and I’m also afraid that even if I do go they will tell me I don’t qualify.

– Annie

I can’t help you with the issue of worrying about your reputation. You really shouldn’t worry about it, though. People think about things like that far less than you think. Do you genuinely think horrible thoughts about a person who actually needs food going to a food pantry?

As for qualification, many do require you to bring some proof of income or proof of a sudden change in income. You can contact the food pantry and ask them what sort of proof they need. This should tell you pretty quickly whether or not you’ll qualify.

My experience has been that if someone genuinely has a need for food from a food pantry, they’re very rarely rejected. Just check with them regarding the standards. They’re just a phone call away.

Q9: What does “frugality” mean?
I read a lot of different personal finance sites. Some people seem to be really negative toward frugality while others embrace it. I think different sites think frugality means something different.

– Joy

I completely agree. I think the word “frugality” means very different things for different people.

For me, “frugality” means finding ways to minimize my spending without reducing my quality of living in any way that I care about. Cutting my energy bill is great as long as I’m not sitting in the dark. Cutting my food cost is wonderful as long as I have freedom to make meals I enjoy and enjoy food treats every once in a while.

I think some people think of “frugality” as being self-punishing. Self-punishment sounds terrible to me. I have no interest in giving up the things I really enjoy in life.

Part of it comes with how you view your life. I think there is a view that any time you don’t have the exact name brand product you want that the minute you want it, your life suffers. It doesn’t. I ask myself whether or not this product does anything I actually need or want. If it does, I ask myself whether or not there’s a free or extremely cheap way to get it.

I think part of the struggle is a lack of patience. People don’t want to wait for the things that they want, and many good frugal practices involve waiting a little bit to see if you can find a better deal or to figure out if this is really the item you need. If you must have it now, frugality seems like punishment.

That’s my take, anyway.

Q10: What does “fee based” mean?
I have read your guides to finding a fee-based financial advisor, but have either misunderstood what that means or haven’t yet found one in our area. I interpret “fee-based” to mean I pay them a flat fee, and they tell me what path they recommend. However, in looking at “fee-based” advisors’ websites, and in meeting with one, it seems that “fee-based” means they still take a percentage of their clients’ assets every year, rather than getting commission from selling them specific products.

Given that we are not interested in having someone “actively manage” our assets (i.e. trying to beat the market), does it really make sense to be handing 1% of our assets over to someone else every year? That seems like a lot of money. Is that really what you mean when you recommend a “fee-based” advisor? Do you have someone taking a cut of your assets every year? Or is there a third option that we haven’t found yet – someone who will just charge a one- or two-time fee to listen to our situation, make a recommendation, and let us go implement it on our own? If so, how do we find such a person, since the ones in our area who claim to be “fee-based” aren’t interested in giving us anything other than sustained investment management?
– Marvin

A fee-based financial advisor works like you describe. Usually, they receive fees based on a percentage of the assets they’re managing for you. That’s their fee. The difference between fee-based advisors and commission-based advisors is that commission-based ones are paid based on commission from whatever investments they steer you into. I’d far rather pay a financial advisor 1% of my assets per year and have them do the best possible job for me than get “free” advice from an advisor who is going to dump me into whatever gets him or her the best commission.

If you call up a fee-based advisor and simply state that you want some advice and want to pay a flat fee to work through some issues, they will usually make time for you. I’d imagine that only insanely busy advisors would turn that down.

The reason I’d avoid a commission-based advisor here is that even with a “free” meeting, they’d have financial motivation to steer you toward certain investments. I’d avoid that.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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