Questions About 401(k)s, Suitcases, Paleo Diets, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Financially stuck in rural area
2. Rationalizing too much spending
3. 401(k) ripoff
4. International stock trading
5. Suitcase recommendations
6. Frugal paleo diet
7. Weekend grocery shopping in October
8. IRA withdrawal concerns
9. Establishing new habits
10. Career “return on investment”
11. Burning out or not?
12. Cultivating other aspects of life

In 2016, I’ve started a new pattern of dividing the year into quarters and spending each quarter on a three month personal project of some kind. Thus far, it’s really really worked well.

I’ve found that during that weekend that comes the closest to the end of a quarter (in this case, October 1-2) is a great time for a review of the project that just finished up, figuring out what worked and what didn’t, and then planning the details of the upcoming project to launch on the following Monday (today, in other words).

Since these projects are fairly personal in nature – very geared toward self-improvement – I don’t want to discuss the details too much. However, I will say that my project for this quarter is related to dietary improvements. I’m trying to discover and implement a consistent way of eating better.

This whole process of “three month projects” feels very invigorating to me. I feel really excited about each change and each self-improvement.

Q1: Financially stuck in rural area

My sister – we’ll call her Katie, but that’s not her real name – is having a rough time. When she and her husband got married, they were both pretty deeply in debt. They managed to pay off all their credit cards & student loans in the last 9 years, and got the remaining debt down to payments on 3 cars and their mobile home. The purchase price was $60K. Things seemed great.

Then, she found prepaid phones & a credit card that had gone to collections because of, um, extramarital activities. He got the boot, she got the “house”, 2 of the cars, and all 4 dogs. While all of this was going on, she decided to change jobs, going with a temp agency that set her up with an assignment for which she had no training… and after about a month of being harassed by her boss for not knowing what she was doing, Katie was asked to not come back.

Now, she’s in a situation where she’s got a part-time-ish job at a call center for a large retailing company – she can pick up extra shifts to try to make ends meet and some weeks can get up to almost full time. She’s looking for a job but not having much success at this point.

The biggest issue for Katie’s financial big picture (aside from not having a job), is that she feels tied to this trailer. It’s not in great shape – there are many things that need fixing as it’s over 35 years old and hasn’t been maintained. The land is worth ~$25K. They’ve paid off about $15K at this point. She feels like she should pay off the whole mortgage, and then sell the land, which seems like she is taking an enormous hit. She lives in a very rural area with extremely limited job opportunities – I think she’d have a better chance of getting work a little closer to where there are more people. She’s in her mid-30s. What do you think is her best outcome? Should she just walk away and declare bankruptcy? Should she follow through with her plan of paying it off? Can she have someone haul off the old, crappy trailer and get a better one to put on the pad? I’m curious to know what your thoughts are.
– Nina

If she’s single and living in a very rural area with extremely limited job opportunities for her skill set and she also has significant debt over her head that she’s having difficulty paying, then she needs a significant change in environment. She’s in a position where there really are no tools that she can use to improve her situation. She can’t get a job that pays well, for starters. She likely has limited access to more training. She’s got a trailer that seems to be an albatross around her neck.

The first thing she needs to do is get down to one car. A single person does not need two cars, especially in her financial state. She needs to sell off one of them and use the proceeds to pay off the other one. This will help her make ends meet much easier than the way things are right now.

She seems to be underemployed, so I hope she’s taking advantage of the many forms of aid available to people in her situation. There are many, many, many programs out there practically begging to help her keep food on the table, clothes on her back, and so on. She needs to be using all of them.

Her long term goal should be to get out of this trailer with minimal impact on her credit, then move away to a place where she can get trained and gain steady employment that will pay more than minimum wage. If she’s not committed to that, she’s probably never going to see a significant improvement in her financial state.

Q2: Rationalizing too much spending

My husband and I have been able to save money while living a nice lifestyle not anything really fancy but generally if we would like to buy something we can. We had a daughter in October of 2015, best thing that has happened to us to date. I previously had a lot of issues with shopping for clothes mostly for myself spending upward of $400 a month on clothing ect. It just is way too much for us. I had then opened a checking account just for my slush money and it has worked for the most part well although sometimes I get on kicks where I spend more than I should.

Since we have had our daughter there always seems like I am buying something. I have set up a budget for us but honestly it seems like a joke because each category is always busted. My bonuses at work really make us have extra money otherwise we would probably live paycheck to paycheck. I will also tell you what debts we have. 2 small car loan, mortgage, small family loan. We paid paid off my students loans!! So exciting. We would like to pay off our cars to be able to have a better debt to income ratio. We don’t have really any bills we could eliminate besides cable but we live in the country and that is our only activity besides being outside ect.

We have money in savings roughly 4 plus months of expenses, a child’s savings account, and an account for our daughter for a car or anything like that. We do contribute to our retirement plans although mine is not fully matched yet which I should try and contribute more. I really would like advise on how to stay more on track monthly. We try so hard but then fail. Like we are always well we have the money it’s totally fine lets just buy it or go there. Which I do still want to be able to do stuff and enjoy the fact we do work hard. I would love to stay at home with my daughter but we have crunched every number and it’s not possible. I do sometimes think that our budget is not reasonable but I just would like advise on how to manage money better. Any help would be great.
– Sara

It sounds like the problem isn’t with the budget, but with self-control. No budget will ever work if it’s not coupled with a commitment to making that budget work. If you see money in your checking account and immediately translate that as being money you can spend on whatever it is that you happen to want at the moment, any budgeting is useless.

I really only have two pieces of advice for you. The first one is to pull out your bank statements and credit card statements for the last few months and go through every single purchase. Ask yourself whether or not that purchase really makes sense in hindsight. Do you even really remember it? Did it bring any lasting value into your life? If it was just “kinda fun,” was there something else you could have done for free that was also just “kinda fun”? Did you buy something you could have just borrowed from a friend or a neighbor or a family member or from the library? You need to be looking at everything through that perspective. Start thinking through every purchase like that, not just in the moment when you’re excited about the potential purchase, but later on when the excitement is gone. Did that purchase really help?

The second piece of advice is to automate some things. If you’re finding it very tempting to spend money in your checking account, set things up so that money is scooped out of your checking account into a savings account or a Roth IRA automatically shortly after each payday, so there isn’t a bunch of cash just sitting there tempting you to spend it. Most banks can do automatic transfers like this quite easily using their online banking tools – just set up an automatic transfer into a savings account, or you might even want to go to another bank and set up a savings account there and set up an automatic transfer into that “second” savings account. The goal is to get the money out of sight and thus out of mind, to the best of your ability.

Q3: 401(k) ripoff?

401(k) is a ripoff scam. No one can retire on it. Motley Fool says people can only get $4k/year out of it. Stop promoting it you look like a scammer.
– Aaron

I’m guessing that the Motley Fool article you’re referring to is this one: The Average American Has This Much Saved in a 401(k) — How Do You Compare? It mentions the number you’re quoting here – that the average American contributing to a 401(k) will get about $4,000 a year out of it upon retiring.

That doesn’t make it a “ripoff.” What it’s actually saying is that a 401(k), like many things in life, is what you choose to make out of it.

If you don’t consistently put money into your 401(k) plan throughout your adult life, there’s not going to be any money in there for you when you retire. A 401(k) builds value by earning returns on your contributions, but that only works if you contribute money.

Let’s say you put in just $1 when you’re 25 and it gets a return of 7% a year. You’re going to have $14.97 in that account when you’re 65. But what happens when you contribute $0? You have nothing when you’re 65.

It comes down to contributions. If you don’t contribute, then there’s no way for a 401(k) to grow in value and take care of you when you’re older. That doesn’t mean the 401(k) system is a ripoff. It’s just like a savings account – it only rewards people who make the choice now to save for the future. If you spend all your money now and don’t contribute, it’s not reasonable to expect there to be money in that account for you when you’re older.

Q4: International stock trading

I represent an offshore company located in St Vincent and the Grenadines. I would like to open up and account and invest in stocks (in the name of my company) and I would lile to know if you know any trading platforms that will allow me to do so.

I’ve contacted OptionsXpress and E*Trade (not working with non-Us residents anymore) and I was hoping you can help me find a company that would accept me.

At this point I am not looking for “the best” anymore.

Please note that I don’t conduct business in the USA.
– Alan

There basically aren’t any US-based companies that allow foreign investors to invest with them directly. There are too many regulatory burdens on those companies, as too many people were using such mechanisms as tax dodges and money laundering mechanisms.

Most people outside the US who wish to invest in US stocks do so by using brokerage firms that operate in their own country. I am unfamiliar with what’s available to you in St. Vincent, so I can’t specifically give you any recommendations.

Q5: Suitcase recommendations

About to take a job that involves a lot of travel. I’m looking for a “bang for the buck” suitcase that will get maximum value – i.e., the cost per trip is the lowest possible while keeping my stuff fairly safe. Recommendations?
– Nate

Honestly, unless you plan on taking anything fragile, I’d take the cheapest suitcase I could find.

Here’s the truth: pretty much any suitcase you buy is going to end up getting pretty beat up. They get tossed around by baggage handlers and often ripped open by overzealous TSA agents. No suitcase in the world will survive that kind of handling for a lot of years.

Basically, you have a choice of buying a cheap suitcase that will last for a fairly small number of trips or a higher-end suitcase that’s somewhat more structurally sound and will last for maybe twice as many trips but will cost you far more than twice as much.

Honestly, just go to a department store and buy whatever’s on sale. Use it until it starts falling apart, then replace it. You’ll have to go through a bunch of suitcases in this way before you end up comparing to the cost of a higher-end suitcase, and a higher-end suitcase won’t last that much longer anyway.

Q6: Frugal paleo diet

I’ve been eating a paleo diet for several years now (summary: very little bread/grains/pasta). We’re starting to “frugalize” our finances and I am wondering if you have any strategies for “frugalizing” a paleo diet?
– Dan

Here’s a summary of the “paleo diet” that Dan mentions:

Basically, you don’t need too much help to frugalize a paleo diet. Many of what I consider “frugal food staples” fit perfectly into a paleo diet – eggs, for example, are a perfect fit, and they’re definitely in that wheelhouse.

Most of our family meal plans are centered around whatever happens to be on sale that week at the grocery store – fresh produce and meats – both of which are perfectly aligned with the paleo diet, too. Many nuts are pretty low cost as well and they’re a key part of the diet.

To me, the paleo diet seems to fit pretty well with frugal living.

Q7: Weekend grocery shopping in October

I need some help budgeting for food. In a normal month I go shopping for groceries 4 times and I usually shoot for spending $150 per grocery visit. Add to that $50 a week for eating out (usually family pizza night each week and then one meal out every other week) and you get our $800/month family food budget. Easy enough, right?

Well we go grocery shopping on Saturdays and there are five Saturdays in October. That means we’re going to blow past our food budget. $150 times 5 is $750, so unless we cap eating out at $50 for the month we’re going to go over.

Suggestions here? Really seems unfair to sacrifice family pizza night at the shrine of our budget.
– Lola

This should happen, on average, a little over four times a year. Remember, a year has 52 weeks plus an extra day or two (depending on leap year), and there are twelve months in a year. So, most years, you’ll have 4 months with 5 Saturdays in it and some years you’ll have 5 months with 5 Saturdays (like when January 1 is a Saturday, for instance).

If you’re finding that your budget cuts that close when it comes to food, I’d put some more breathing room in there. Increase your budget for food by about $100 a month, but try to stick to your $150/week at the store plus $50/week for eating out. That way, every third month, you should have an extra $300 on hand, which will cover that extra $150 for groceries and $50 for eating out from that extra week. The other $100 can go to help with unintended overages and also for those times when this pops up five times in a year.

That may mean some changes in other areas of your family budget, but you’ll be better off over the long term with those changes. You’re better off coming in under budget in specific categories, after all.

Q8: IRA withdrawal concerns

This is my first time to have a financial question for you. I really don’t know where to turn for this kind of advice.

Please don’t advise me to keep my IRA – the short of it is I want to cash it in but want to do it in the least painfully taxed way. I don’t have time to go into all the reasons why I want to cash it in and you don’t have time to read a long saga anyway. My first inclination is to take it all out at once, pay the infernal taxman and be done with it. But being impulsive can be costly. So I decided to see if I could find a better way. I’ve perused the internet to no avail. Can you help me please?

* I’ll be 64 in Dec.
* I have only about $10,000 in an IRA & I would like to close the account and have the cash to place elsewhere. Since it was taken out of my paychecks pre-tax when I rolled over my 401K it had to go into a regular IRA. I will not be putting it into another IRA or any account associated with the stock market. Right now my IRA is earning me a grand 8 cents per month.
* At the end of this year I will have a gross income of $18,482 – $8,242 from Unemployment and $10,240 from my new job.

* Would it be better to take it all out at once or is there a more wise way to close the account in a relatively short amount of time? I’m not even sure how to figure out what would be best.

I can’t think of any more facts that you might need to know in order to give me a dose of advice. I still enjoy your newsletters and check out the website as well. Just today I mentioned your website to the guy who came to look at my furnace.

Thank you for any help you can give.
– Ralph

If you’re only making $18,000 a year right now and you only have $10,000 in your IRA, you’re probably in the best possible place for just emptying out the whole thing right now and doing whatever it is you have planned for it. The tax bracket for the 15% tax rate in 2015 for single filers is $9,226 to $37,450, so (assuming the brackets for 2016 remain similar) no matter how much of that $10,000 you take out, you’re going to be paying 15% on it.

So, let’s say you take out the full $10,000. You’ll end up owing 15% federal income taxes on it ($1,500) and any state taxes on it (it depends heavily on what state you’re in – could be anywhere from $0 to $1,000). I’d probably put aside $3,000 of it to be safe, then use the remaining $7,000 in whatever way you feel is appropriate.

Note, of course, that this is all under the assumption that you’ve made the decision for other non-financial reasons to withdraw that money now. If that’s the underlying principle, you’re in fine shape to empty it out given your financial state.

Q9: Establishing new habits

How exactly do you go about establishing a new habit, like a permanent diet change or an exercise routine? I find that every time I do this it utterly fails within a week or so. What works for you?
– Danny

For me, the most effective method for establishing a new habit is making it into a strict 30 day challenge – and sometimes even longer than that. I simply challenge myself to do this new habit each day for 30 days and I really focus on achieving success with it.

On each of those days, I try to establish a consistent time and place to do whatever it is that I’m wanting to do. For instance, if I’m going to exercise, I define when I’m going to do it each day (maybe after my first morning writing session, for instance). I then make it a point to do it at that time each and every day, using every way I can to remind myself to do it.

After those thirty days, I slowly start peeling back the reminders for the new habit until I don’t need reminders at all – it’s just natural to do things at that time.

Q10: Career “return on investment”

How do you figure out if something like a certification is going to have a good return on investment in your career? For example: if I go spend the money on a certification, am I actually going to earn the money back and more with a higher salary?
– Charlie

You never really know for sure – that’s because the future is uncertain. All you can ever really do is evaluate the likelihood that it will help.

The best way that you can evaluate the usefulness of some investment in your career is to look at job listings and see if certain certifications or other things match up with a higher salary or with a different position entirely. Another strategy is to directly talk to your supervisor about steps you can take to increase your salary or increase your chances at promotion or increase other benefits (at my previous job, I often lobbied for more time off instead of more pay).

Again, none of those things are guarantees, but they are indications that the door is open to greater pay if you take on that step of self-improvement.

Q11: Burning out or not?

Hubby and I have big disagreements about creating a budget. I want to really cut back on our spending and start getting rid of this debt and investing for the future ASAP. Hubby wants to go slower. His big argument is that if we do it my way we will be fine for a while and just burn out after that and end up back where we started. He keeps saying “little steps.” But I feel like if you don’t take “big steps” with this you won’t ever get there.

What can we do to take big steps while avoiding “burnout”?
– Lindsay

Communication. Honest, open, clear, regular communication. Nothing beats it.

Whenever you find yourself “hiding” a feeling in order to please your spouse, it’s basically the equivalent of putting a pinch of sand in a gas tank. It’s probably not going to do any harm, but over time, it’ll gradually wear down the engine. Do it too often and you’ll find yourself arguing and feeling frustrated more and more and more.

Take the big steps, but talk about them all along the way. Never, ever hold back, and never, ever get angry at your spouse for their take or the way they feel about it. If your partner wants to pull back, pull back a little.

Q12: Cultivating other aspects of life

I am recently retired at age 53 and I just learned about you and other writers online who write about personal finance and long term financial independence. Kudos to you for sharing the ideas in such a friendly way!

The biggest lesson I want to share is to take care of yourself along the way. Eat well, get plenty of sleep, stay in shape, have some good relationships, and find a few hobbies that really speak to you. Do those first, before worrying a bit about financial independence.

I know this is a topic you cover sometimes, but I really want to stress this to you. Don’t forget things like hobbies and personal health and fitness and relationships in order to push toward retirement a little bit sooner. If you can walk away at 48 instead of 53 but your body is broken down and you don’t have anything you’re passionate about, you’re going to be miserable.
– Owen

You said it perfectly, Owen.

You can work toward any financial goal you’d like, but that goal really isn’t worth much if you’re miserable when you get there. If your financial goals mean that you’re in poor physical shape and/or poor mental shape and/or lacking in ways to find genuine leisure in your life, you’re not going to have much joy when you achieve that goal.

Financial success is great, but it doesn’t mean much on its own. If it’s not supported by physical success and mental success and spiritual success, it’s not going to be the tentpole that holds up your life.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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