Questions About Blenders, Carpools, Vanguard, Zero-Sum Budgeting and More!

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. Struggling to climb debt mountain
2. Debt payoff or savings cushion?
3. Unpaid taxes on family farm
4. Questions about zero sum budgeting
5. Disability insurance and mental health
6. Insurance on grown children
7. Question about Vanguard
8. How much to “retire” on?
9. Dollar Shave Club thoughts
10. Carpool maybe not worth it?
11. Blender upgrade worthwhile?
12. Iowa caucus

It’s funny how your kids grow up as you watch and you scarcely even realize it as it is happening.

My oldest child is 10 and pretty mature for his age. You can have a conversation with him on almost any topic you can think of and if he doesn’t know something, he starts firing off questions until he gets answers. I can feel our trust in him handling things on his own growing by the day.

Our other children are young enough that it literally just seems like a few days ago that they were babies. Yet they’re all in school now, learning things and building friendships and going through all of the playground social drama that comes with it.

They’re all old enough that they’re now going through experiences that I remember from my own childhood. I remember going to elementary school. I remember starting to have adult conversations with my parents and asking lots of questions to fill in the blanks. I remember navigating the burgeoning social structure of the children in my class.

The thing that really blows my mind is that my oldest child is currently closer to college than infancy.

I love watching them grow up. It’s an amazing journey. But it’s also kind of sad that I will never see them as babies or toddlers again, first discovering the world, wearing their emotions so strongly on their sleeve, staring up with eyes so wide and innocent and full of trust and unguarded.

I just hope I’ve guided them well so far.

Q1: Struggling to climb debt mountain

My husband and I combined have close to 70k in debt (15k is credit cards, 55k is student loans). We have a one year old. My husband freelances and usually grosses 50k annually without benefits working 3 jobs for a total of 50-70 hours a week. I’m getting my masters in statistics and expect to graduate in Dec ’17. I’m currently preparing for my first actuarial exam. My grades dipped (didn’t use enough childcare) so we’re funding my courses with student loans for a semester. I know financial gurus like Dave Ramsey say to never take on student loans, but I was waiting tables and working as a secretary with my liberal arts degree before school. I’m hoping a career will help get us out of the hole. It feels really discouraging to have all this debt, no house, old (paid-off) cars, little savings, no 401k and have to continue living on a shoestring for the next couple years trying to make a dent in our debt. My husband doesn’t see our daughter much during the week because of his work schedule. Are we doing the right thing? Is there a quick fix? It feels like all of our 30-something parent friends have their lives together, and we screwed things up. I wish I learned more financial sense as a kid. My husband and I both grew up in the lower end of the tax bracket, and I really relate to your money story, Trent. I hope ours has a happy ending, too.
– Jeanette

This is the hard part. But it’s also a very, very memorable part.

This is the part that you need to never, ever, ever forget when things start to get better. Remember that you were able to pull this off and you were able to have a good life on the thinnest of shoestring budgets. Remember that you did these things to build a better life for you and your children, and the way to that better life is to plow through those debts, not to start inflating your lifestyle as soon as your income goes up.

For me, I use the feeling that I had in 2005 and 2006 when our financial situation was a disaster. I felt scared and worried pretty much every single night, for myself and for my wife and for my infant son. It was a low point in my adult life.

I try to never forget what that felt like. Every time I sense my spending inflating, I think about that experience and I resolve, more than ever before, to never ever ever go back there.

You never want to go back there. You are building a road out of there. When that path forward is ready, take it and stay on course and never forget where you came from. Also, never forget that it isn’t money that brings joy into your life, because your life likely has much joy along with the struggles right now.

Q2: Debt payoff or savings cushion?

Let’s say you have a good savings cushion, about $10,000 in liquid assets. The original intent was to save for unpaid maternity leave for one spouse and a fluctuating income for the other. Then you realize you could pay off student loans and a car using the savings, but it would shave off $7,000 from your savings. The loans account for $400 of monthly expenses. Given the choice, what do you do – keep a savings cushion or pay off debts?
– Nellie

It depends on the maternity leave question.

When exactly are you planning on taking maternity leave? Have you carefully budgeted your money to make sure that you can make ends meet while you’re off on unpaid maternity leave?

I would be very hesitant to spend money in the bank right before going on an unpaid leave unless you were very, very sure that you had your i’s dotted and your t’s crossed.

Yes, paying off the loans early would cut down on your monthly expenses, but having $10,000 in the bank versus $3,000 in the bank is going to make it easier to last a lot longer when you’re in maternity leave.

If I were you, I’d try to spend very little during maternity leave and then pay down debts with the savings that’s left when you’re done. That way, if something goes wrong, you have cash on hand to handle it.

Q3: Unpaid taxes on family farm

Hi my grandmother has property which she has left due to unpaid taxes. Is there any way I can pay the taxes due to keep the land in the family? She is 90 years old and moved to subsidized housing so the land is just sitting there and I’m a single mom with three kids who would really enjoy the farm.
– Aimee

The first thing I would do is figure out to whom taxes are owed and the state of those taxes. Are property taxes owed to the city or county? Trace this back and make sure you understand exactly what is owed, to whom it is owed, how late it is, and what the risk of a tax repossession is.

Then, contact the office to which the taxes are owed and discuss options with them. You’ll find that most tax collection offices are quite willing to work with you to come up with a plan to get the taxes paid.

Once you know what exactly you need to do, assess whether or not you can financially pull it off. Can you manage that payment plan?

You can contact a lawyer here, but the expenses of a lawyer will likely not end up helping you out here too much. A tax lawyer may be better equipped to negotiate with the tax collectors, but you’ll have to pay the tax lawyer. Some lawyers operate by simply taking some of the money they save you, so that might be worthwhile.

Q4: Questions about zero-sum budgeting

I understand the zero-based budget idea but how do you implement it using my online credit union? I have a savings and checking account. I’ll need about 10 other accounts–I must maintain a $25 balance in each one. Is this what I do? I can’t see using the “envelope” system to allocate funds for property taxes, car insurance, etc.
– Lindsay

I assume that by “zero-based budget” you are referring to the concept of a

“zero-sum budget” that I’ve discussed before on The Simple Dollar. The idea behind zero-sum budgeting is that every time you figure out a way to save money on something, you immediately increase your automatic savings by an amount equal to what you’re saving, so you’re left with the same amount of money with which to budget. So, if you figure out how to trim $20 from your energy bill, you immediately increase your savings by $20 a month.

You don’t need a bunch of separate accounts to maintain this – you mostly just need a checking and a savings account. If you want to put aside savings for a variety of things, you can simply keep track of this yourself. You might have $1,000 in savings, for example, but 20% of it is an emergency fund, 40% of it is for your next car, and another 40% is for holiday spending. You just automatically transfer a certain amount to that account each week or month, and you increase that transfer each time you get a raise or when you figure out a new spending tactic.

All you need to keep track of this is some time, a piece of paper, a pencil and a calculator (or else a spreadsheet).

Q5: Disability insurance and mental health

What companies have disability insurance that will cover mental health problems for 30 years? None at present but just in case.
– Carrie

Long-term disability insurance policies typically do not provide extensive benefits for mental health issues. Most policies offer just one or two years of benefits for mental health concerns and then stop paying benefits, while other policies offer nothing at all.

Most insurance companies will work with you to come up with a disability insurance package that you’d like, but for extensive mental health coverage, you’ll likely have to work directly with them and this won’t be an “off the shelf” disability insurance policy. You can expect that you’ll be paying for it and you can expect that they will make you jump through a lot of hoops to prove disability.

The vast, vast majority of people simply rely on Social Security disability for benefits if mental health issues are preventing them from working.

Q6: Insurance on grown children

Have 2 grown children, I bought their life insurance policies and now I want to take out the cash value for a Nursing Home policy. Will insurer want to see if kids want to keep policy, or just cancel it?
– Nicole

The insurer will probably ask you about this, but if you are the owner of the policy, it’s your decision, and it sounds like you are.

The beneficiary – one of your children, on each policy – is just a part of the policy, which you are the owner of. You are the one that can decide to surrender the policy and the money goes into your pocket.

It sounds like you are considering surrendering this policy to recover the cash value and then wanting to use that money to establish a long term disability insurance for yourself. That’s certainly a reasonable move. My only advice to you is to shop around for this new policy and make sure you are getting the best deal on a policy that meets your needs.

Q7: Question about Vanguard

I have been looking into investing directly with Vanguard as you suggest. One thing I don’t understand is what the difference between investor and admiral shares are. Explain like I’m 5?
– Nathan

Basically, admiral shares are exactly the same as investor shares except that they have a lower expense ratio.

When you own a mutual fund of any kind, the company that owns that mutual fund pays for the cost of the fund (and makes a little money for themselves) by taking a small amount out of the overall value of the fund each year. That’s the expense ratio. Let’s say there’s a mutual fund that owns $10 million in assets and there are 100,000 shares aout there. Each share would be worth $100, right? If it has an expense ratio of 0.01%, that means that 0.01% of $10 million will be taken out of that fund each year, leaving you with $9,999,000 in value after that first year and each share is worth $99.99. Of course, you’re expecting the value to go up over time, which should more than make up for the expense ratio.

An admiral share is basically identical to an investor share, except with the admiral share, the expense ratio is lower. Of course, to buy admiral shares, you usually have to have a significant amount of money in that fund already.

Q8: How much to “retire” on?

Could you walk me through your thought process in terms of figuring out how much you would need to retire on? Trying to figure out my own “number” but have no idea how much I need.
– Emma

A good place to start is with the amount of money you spend each year right now. That’s where we started. We assumed that our annual expenses when we retire will go down by about 25% from what we spend right now because we won’t have children at home, but we also want to travel a little more. Let’s say that revised number for us is $40,000, to keep numbers round.

Now, we’re not going to retire right now – it’s going to be several years from now. Inflation is going to happen and we’re figuring on 3% inflation. So, we figure up how many years between now and our expected date for early retirement and we take 1.03 to that power.

In other words, let’s say that it’s going to take us 10 years to retire early. We’d want 1.03^10, or 1.03 times 1.03 times 1.03 times 1.03 times 1.03 times 1.03 times 1.03 times 1.03 times 1.03 times 1.03, which equals out to about 1.344. We then take our estimated money we need per year, which is $40,000, and multiply it by that inflation factor, giving us $53,757 per year.

The next factor is the safe withdrawal rate. From what we’ve read, if we withdraw 3% of our investment balance each year to live on, the money should last for the rest of our lives (since there will also eventually be a Social Security boost). So, we divide that inflated annual number by 0.03 to give us the number we actually need to save – $1,790,000, give or take a little.

That’s our target number if we want to walk away from work in 10 years. It seems big, but it’s something to work towards.

Q9: Dollar Shave Club thoughts

What’s the deal with Dollar Shave Club? Looks like they save money over the Gillette cartridge train even with shipping.
– Shaun

The shaving clubs that are out there – Dollar Shave Club, Harry’s, and so on – do save money compared to buying similar quantities of Gillette cartridges off the shelf, unless you have a very very good deal on mass quantities of cartridges. Plus, the supplies from the shave clubs are delivered to your house, meaning you never have to think about it again.

Having said that, Gillette also offers a shave club that ends up having comparable pricing with the other clubs. If you really like the Gillette razors – and I’ve tried Gillette, DSC, Harry’s, and other options and find them roughly the same – then this might be a route to consider.

Of the shave clubs I’ve tried, I thought Harry’s offered the best product for the dollar. Dollar Shave Club offered a solid value in comparison, but I give the nod to Harry’s for a slightly better razor to grip and what felt like a bit closer shave.

The truly frugal route, though, is an old fashioned safety razor with double edged razor blades. They take a lot of getting used to if you’re used to cartridge razors, but it’s the best shave for the dollar that you can get by far.

Q10: Carpool maybe not worth it?

I recently switched jobs and at my new job I discovered that there is a carpool in my area. The carpool gets to the office between 8 and 8:15 AM and leaves at about 5:30 PM. The problem is that my normal schedule gets me to the office by about 6:30 AM and then I leave around 4:30 PM or so. My boss and I have very similar schedules but we live in opposite directions, and we’re both usually among the first people there and sometimes have really valuable conversations when things are just starting for the day.

So on the one hand I can start commuting to work without needing a car 4/5 days of the week which is great and will save some real cash on fuel and maintenance. I have no problem doing household tasks in the morning before showering and getting ready for work because that’s what I do after work anyway. The thing I lose is the conversations with my boss and the early morning hour of quiet to actually get stuff done at work before people start filing in.

Do you think the carpool is worth it?
– Jeremy

It really depends on how much you’d be saving with the carpool and how hassle-free and drama-free the carpool really is. You won’t know the latter factor until you’re in the carpool, of course. It also depends on what your career plans are.

I think there is a great deal of value in being first at the office, especially when your boss is noticing that you’re there early and you have some communication opportunities. Your boss likely has a positive frame of mind concerning you, which gives you some job security. That positive frame of mind will continue to last for a while after the switch, but it will gradually weaken over time. There is value in that relationship.

The question is how much value that relationship has. Are you planning to stay with this organization for a very long time? Are you going to switch jobs in the fairly short term? If you don’t see yourself there long term, then the carpool seems like a better idea than if you’re staying there for a lot longer.

Q11: Blender upgrade worthwhile?

I have a cheap Oster blender I’ve been using for three years now. I make a smoothie for breakfast every day, usually the same handful of fruits and a bit of yogurt and honey and milk.

A lot of time the smoothie is lumpy and I end up chewing on chunks of fruit which is kind of gross. I am thinking of upgrading my blender. Do you think a blender upgrade is worth it and do you have any recommendations?
– Stephen

Given that you use a blender every day, even given its faults, and you can clearly see the faults in the item you’re using, a blender upgrade is a reasonable expense provided you can easily afford it.

The big mistake many people jump into when buying expensive items or upgrading things is that they upgrade things that they rarely use and do not have as part of any regular routine in their lives. You don’t need expensive items for those things – in fact, you probably don’t need an item at all. Buying something new will not magically create a better routine for you – a new item can only make a routine you already have a little better or easier.

Gear does not make the habit necessary. Habit makes the gear necessary.

So, what about a blender recommendation, then? I use a blender a few times a week. We have a Blendtec blender (this model) that we absolutely love. It creates wonderful smoothies that are almost perfectly blended every time. I’ve made pureed soups and other things in it, too. I have heard similar notes about Vitamix blenders, but I’ve never had the opportunity to use one.

So, I’d recommend that Blendtec model for a higher-end blender. It really does the job. My only minor complaint is that it’s a bit noisy.

Q12: Iowa caucus

Given that you’re in Iowa and seem to be community minded do you participate in the caucuses? Do you think it is weird that Iowa gets such a big hand in picking the next president?
– Victor

I have participated in the caucus in every year since 2004. The only year I could have participated in the caucus as an Iowa resident and did not was in 2000, when I was in college and had an evening exam on caucus night.

It really is an amazing experience. I never, ever feel closer to the presidential selection process than I do in the caucus room.

I think it makes sense for Iowa and New Hampshire to maintain their spots as the opening states in the presidential race because both states have a very high degree of involvement in the process. The people in both states turn out in incredible numbers over and over again for the onslaught of candidates that visit both states at this point in the primary season. Towns who have had eleven candidate visits in the last month can still get more than a quarter of the town’s population to show up for the twelfth candidate.

The caucus season really becomes part of the culture here. I’m not sure that phenomenon would repeat itself in other states.

I should say that I also don’t view Iowa or New Hampshire as “president pickers.” I think we instead winnow the field down to maybe three candidates in each party and then other states pick among those candidates.

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.

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