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. Selecting a guardian
2. Is a food processor worthwhile?
3. Down payment savings
4. Positive and negative net worth
5. The “helpful” family
6. Zillow questions
7. Joining a gym
8. Starting a book club
9. Stop buying bulk food?
10. Credit card debt surprise
11. Trust question
12. Philosophy goal question
As I’ve said many times, one of the biggest and most important tenets of personal finance philosophy, in my view, is the idea that you can spend less on the things that are less important to you so that you can spend more on the things that are more important to you. For example, if you can be frugal on things like your choice of laundry soap and window cleaner and the size of your apartment and so on, you can afford to be a bit less frugal on things that are really important to you and things will balance out.
Sometimes, when I talk about those things, I use my own example of what’s “more important” and what’s “less important” in my eyes. I have my own ideas on what’s actually important for me to spend my money on and what’s not really important.
That may or may not line up with what’s important and not important to you. And that’s okay.
Sometimes, by using my own example, it can seem as though I’m judging others based on the fact that what they find important doesn’t line up with what I find important to spend money on. I’m not. I’m just using myself as an example because, frankly, that’s the easiest example I have to write about.
For me, at least, spending money is becoming less and less of a source of happiness. As time goes on, I find more and more joy in simply doing things and learning things than I do in buying stuff. That happens to have a very ince impact on my spending, making it easier to continue to save for the future (which, for me, is financial independence). That’s a personal journey that I am on, one that may or may not reflect what you’re going through. You may have other goals and other feelings about how you spend your money.
In other words, I’ve come to personally recognize that, for me, the idea of spending on things that are “more important” to me is just a crutch that I was often using to spend money on stuff that really didn’t matter just because I wanted it in that moment.
The key thing is this: spend less than you earn. Then, use that excess to either reduce your spending further by paying off debt or use it to save for a brighter future. The specifics of how you do that put the “personal” in personal finance.
My wife and I have been preparing a will in preparation of the birth of our child later this year. The biggest challenge we have faced is choosing a guardian and we hope you can help with that.
Between the two of us, we only have one surviving parent. Her mother is severely schizophrenic and has been in and out of institutions for the past ten years.
She is an only child largely raised by her father who passed away a few years ago. I have two siblings, both of whom are felons and one is in prison. The one that is not in prison has a very high chance of repeating his mistakes given his current life choices.
We just moved to a new city and have not established any strong friendships or professional relationships here. While we do have a lot of friends, none of them live within several hours of us. We are members of a few social organizations so we will meet people in the future.
Who do we choose as a guardian? Where do we even start?
In your shoes, I would look through your individual histories for close friends in the past who would be open to such a situation. Who are your most lasting friends? Among them, who would be most likely to be willing to take on this responsibility?
Your past personal relationships are really your best avenue for mining at this point, as you don’t have family or current relationships to draw upon.
The key thing to remember here is that you’re likely to change that designated guardian sometime in the next few years. Your will can be revised. It is not set in stone. If a new and appropriate relationship emerges, use that one instead.
I am trying to set up a good kitchen where I can make lots of stuff at home and get good at cooking so that I don’t have the need to go out. I have been reading a lot and watching a lot of videos about things people need in a kitchen and how to prepare some of my favorite meals.
I keep seeing a food processor pop up. To me it just looks like something that duplicates what a blender and a knife do. It either blends stuff together or slices stuff for you.
Why should I get a food processor when I already have a blender and a cutting board and a knife?
Sarah and I were in the same boat you were in about 2006 or so. We asked for a food processor for Christmas. I think we’ve used it five times. It sits in a box in our garage and will probably be sold on Craigslist or at a yard sale in the next year.
What you observed is true, at least for us. It never really did anything that we could not do with other devices, especially given that we have a really good blender. Every time a recipe called for using a food processor, we just used something else. Why? By the time we got out the food processor, set up the right attachments, and then cleaned the thing, it was more convenient to just use other devices even if the food processor did that task really well. The actual use of the processor might take less time, but it became another thing to set up, clean, and put away, and that added more time.
That being said, it does do some things well. If you want to shred a lot of cheese for four pans of lasagna, you can save money by just buying a big cheese block and shredding it in the food processor, as the processor shreds cheese really quickly. It can chop vegetables reasonably well, though I now feel more confident with a knife in my hand unless I’m chopping a lot of vegetables. Most of the other things I might use it for are honestly done just as well with a good blender (making breadcrumbs, etc.).
If you get one as a gift and make a lot of things in bulk, it’s probably worth it. Otherwise… I’d skip it.
Where would you recommend putting funds (10-15k annually) for a down payment on a house with the end goal being in 3-5 years?
With a timeframe that relatively short, I’d usually recommend just putting it in a savings account. A savings account is guaranteed to not lose balance over that time. If you want to boost it a little more, put it in CDs with a timeframe of 1-3 years.
Other investments with more risk might have better long term results than a savings account, but over that short of a timeframe, they run a significant chance of losing money. There are many, many five year periods in the stock market with a losing record. There are many, many five year periods in local real estate markets where no money was made.
Put it somewhere really safe for that time period, something that will earn a small positive return but won’t lose your cash. A savings account is perfect for that.
Over the last few months, I have been using your suggestion of calculating my net worth each month and then calculating the percentage change in that net worth. That’s been interesting to say the least.
The problem is that I recently crossed over from negative to positive net worth. How do you calculate the percentage change there?
Basically, you don’t. There is no real way to calculate percentage change when you cross over into positive net worth. You could “cheat” and call it 200% if you’d like, as it’s a 100% improvement as you go from a negative value to $0, and a 100% improvement as you go from $0 to a positive value, so adding them together gets you 200%.
It is worth noting that percentage net worth changes aren’t very useful even when you’re close at all to a zero net worth. For the next few months, that percentage change in your net worth is going to be very large and it’s going to be a percentage that’s going to be difficult to match in a few years.
Other than making sure that the percentage change is positive and reasonably large, I wouldn’t put too much stock in that number until your net worth is at least as large as your salary. Prior to that, it doesn’t take much change at all to give you a large positive percentage change.
My husband started reading your blog in 2007 and got me hooked on it shortly thereafter. We’ve been following your story for almost nine years!
We have decided that we want to retire around age 40 and to do that we live very inexpensively. We bought a small house and have been spending our spare time fixing it up and putting a ton of sweat equity into it. It still looks like a dump on the outside and is clearly the “worst house in the neighborhood” at least based on curb appeal. We make a lot of gifts for people for holidays too.
Because of that, many of our family members have this impression that we’re poor (even though I am pretty sure we have way more in savings than they do) and at holidays some of them have tried to give us money to “help out.” Sometimes it’s thousands of dollars.
We have tried taking them aside and explaining our financial plan to them but they seem to just not hear what we are saying and insist we take their money. We’ve even found money stuffed into the side pockets of suitcases by well-meaning family.
What can we do here? Do we just have to accept their well-meaning “charity”? Or is there something else we can do?
It is kind that they’re giving you money, but you should also consider that money given in situations like this is sometimes given with an ulterior motive. It may be that they want you guys to stop “appearing poor.”
Regardless of your words, in their eyes, you look poor, so they assume that you are poor. They don’t want you to either look poor or be poor and they view themselves as having plenty of money (regardless of whether that’s true), so they give you some of that money so that perhaps you won’t look poor or be poor in the future.
They want to help, but they don’t know how to help, in other words.
If I were you, I’d take their money and use it to buy some nicer clothes to wear to family events and maybe wash the car before you go. It might seem wasteful to you, but it’s a good way to turn earlier charity into “future unwanted charity repellent.” It also gives you some nice clothes to use for other purposes. You might also want to put the outside of your home on high priority for the next step in your renovation project so your home looks better from the curb.
My husband and I have been searching for a house lately as our current two bedroom house is getting too small for our family of four. Many of the articles we’ve read encouraged us to use Zillow to find houses for sale and to estimate the sale value of our house.
We’ve had two problems. First, the “Zestimate” seems to be completely unrealistic. It’s about 25% higher than what similar houses are selling for around here. We have been told that the number is “pretty accurate” but it just seems crazy.
The other problem we have had is that we have found two “perfect” houses on Zillow and then called the broker to find that the houses were no longer for sale.
Is there a better way we should be searching for houses?
Here’s how real estate listing works. Most people go through a real estate company when selling. That company uses a service called MLS (which is actually a bunch of regional services, not one big organization) to share that property listing with other real estate companies who pay for the MLS service. Think of it as a private Zillow only for people who pay to be a part of it. Sometimes, local sections of the MLS are available for public searching; sometimes they’re not.
Zillow (and other sites like Zillow) are then left to fill their database with houses that are listed for sale elsewhere, such as in public ads for houses for sale. Those ads aren’t updated constantly, so Zillow’s database is always going to lag.
Things are getting better. Zillow has been signing contracts with various MLS groups to allow their properties to be listed on Zillow, but it’s not perfect. Some agreements allow only some of the MLS data to be shared, and nowhere near all of the MLS groups are on Zillow.
As for the questionable estimate, it is just an estimate and no estimate is perfect. I think Zillow’s estimate of our current house, for example, is about 5% too high.
I have been considering joining a gym in my area primarily for access to the weight room. According to my math, it would take about twelve years of membership at this gym to buy all of the weights I would want and I would also need space to store it all at home. I would pretty much have to use the garage.
Affording and storing the weights isn’t really a problem and I hate to add another bill to my monthly stack. On the other hand, this seems like a problem that’s solved by “renting” rather than “buying.” Thoughts?
If the two options are to spend thousands of dollars on weights or join a gym, I would virtually always recommend joining a gym. Unless you are an extremely dedicated weightlifter, the gym is going to cost you less over the long run.
You’re correct that it will add another bill to your expenses for a while, but you give indications that you are in an extremely stable financial situation. This shouldn’t be a problem.
If you want to make it all easier, take the money you would have spent on weights and transfer it to a new savings account. Then set up your gym membership to be automatically paid from that account. You’ll be fine for the next decade or more, plus you won’t have to deal with storing all of those weights anywhere in your home or worrying about how to move them.
Do you have any advice on starting a book club, especially one where the readers can easily share the books so it doesn’t become expensive for everyone?
My sister is in an awesome book club in her city but they buy the books every month and sometimes the books are new releases. I don’t want to turn a book club into a $15 or $20 treadmill for members each month.
Work with your local library. That’s how most book clubs operate around here, at least the successful ones.
Just stop by your library well in advance of starting up your book club and ask them about their book club services. The way this typically works is that, with about 60 days notice, a library will use interlibrary loan to track down several copies of a book for you so that they’re available for checkout all at once. Some community-minded libraries will even advertise your book club for you with a display showing your current book and information about your club.
I can’t make any guarantees about how well your club will work with you or how they handle book clubs in the community, but that’s absolutely where I would start.
Any thoughts on this article? Seems to have a strong argument against food bulk buying.
For me, the key line in the article is this one:
“As much as 40 percent of America’s food supply gets thrown away every day, with perishable items like dairy, breads, meats, fruits, and vegetables leading the way.”
Perishable items are the ones getting thrown away. It is wasteful purchases of perishable foods that’s causing the problem.
I generally discourage people from buying perishable foods in bulk. That’s usually a really bad idea. The exception to that is when you’re buying a bulk purchase of a specific food with a plan to use it in a bulk meal preparation with the intent of freezing most of those meals.
For example, I’ve bought bulk spinach and bulk tomatoes before when making several pans of lasagna at once. I ended up using all of it within a few days of purchase.
For normal home use, I basically would avoid ever buying perishable foods in bulk unless your whole meal plan over the next several days is centered around that food.
For the first four years of our marriage, my husband and I have been keeping our finances separate. We each pay certain bills and then the rest of our individual money is ours individually. This worked well so far or at least I thought so.
We sat down together to figure out our plan for saving for a house and I found out that he has $27,000 in credit card debt. He just seemed to think this wasn’t any big deal and shrugged it off.
I don’t even know where to start. He doesn’t even recognize how this debt has a negative impact on me or on our future. He just figures he’ll pay it off later on when he makes more money.
What do I do? I just feel distraught over this.
The problem here is that you have two different perspectives and sets of values when it comes to money. That doesn’t mean one is “right” and “good” and the other is “wrong” and “bad.” It just means that they’re different.
To find a solution, you’re going to have to sit down together and discuss things. This does not mean one of you gives in entirely to the other one’s viewpoint. Instead, you need to figure out what things you actually do agree on and work from there.
Usually, one sided credit card debt like this is the result of one person trying hard to play along with another person’s values without really sharing those values. If you don’t correct that, you’ll never fix the actual problem. The credit cards are just a symptom.
I highly recommend the book Financial Infidelity by Bonnie Eaker Weil for this situation. Pick it up and read it.
My grandparents left each grandchild a trust with $500,000 in it. The rules of that trust give me a 3% stipend each year – whatever the balance is, I get 3% of it. I don’t know about the taxes as an accountant handles all of that work (paid for out of a bunch of trusts) and I have the same guy do my own taxes. My current balance is $588,000.
The trust allows me to take out as much as I want to buy a house. Does it make more sense to buy the entire house from the trust? Or should I leave it there and make house payments on my own?
First of all, unless something really unusual is happening, you’re paying income taxes on that 3% annual amount. It’s likely that your accountant is just giving you post-tax money and keeping enough set aside to cover your taxes for you. You’re probably collecting about $10,000 a year from it.
No matter what, I would talk to that accountant about your decision. He’ll know the state of that trust far better than I do and could give you good advice about what to do. There are many factors that have an impact here, including what kind of house you want to buy.
My gut feeling is to just leave the money in the trust, as it could wind up putting you in a house you can’t afford to maintain if you use a big chunk of it to buy a house.
I really loved your post about being a “doer” but I was surprised/confused about your philosophy goal. Really?0
When I was first considering college, I wanted to major in philosophy, math, or English. Honestly, without a higher degree, none of those paths really led to a good career, and pretty much everyone advising me at the time had me spooked with regards to choosing a degree path that led to a career. So I didn’t end up choosing any of them.
So, now that I’m at this stage in my life and have some flexibility and financial breathing room, I realized I still wanted to study those things – particularly philosophy, math, and the theoretical end of computer science. I considered going back to college as I don’t live too terribly far from Iowa State, but the more I thought about it, the more I realized that I would just be paying a lot for a degree I wouldn’t likely do anything professionally with, so why not just study on my own?
I may end up sitting in or auditing a class or two there if I can get away with it, but for now I’m pretty content with home study. It’s just something I’ve always wanted to study and learn more about, so why not do it now?
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.