Questions About Goal Setting, Financial Advisors, Shaving, Philosophy, 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. Setting goals and reflecting
2. Financial advisor for young professional?
3. Right time for IRA?
4. A job without challenge
5. Short term credit improvement
6. Basic personal finance materials
7. Downsides of saving heavily
8. Cutting up credit cards
9. Cost of shaving versus beard
10. Migrating large CD collection
11. Philosophical reading list?
12. Saving up for first home

Every other year, my wife’s extended family gets together for a large family reunion. Aunts, uncles, cousins, grandparents, in-laws and family friends all gather together for an event that stretches across four days (with different people coming and going throughout those days and some people staying for all of it).

It is a very low key and relaxing affair with lots of conversations, games of cards, food and beverages, movies, walks, hikes, geocaching, geode hunting, and so on.

Of course, as with any good family reunion, people stay up far too late every night and, as relaxing as the event was, everyone goes home ready for a long night of sleep.

There are few things that make me happier knowing that I married into a family that’s so close knit and is capable of having wonderful, relaxing, peaceful events like these. They’re worth their weight in gold to me.

Q1: Setting goals and reflecting

I’m doing the 31 days to fix your finances and I’m on day 2.

Question 1: My 25 year goals are very broad and vague (unlike the examples you gave). Should I try to make them more specific? My 1 year goals are more specific.

Question 2: Do I have to “sleep on it” as your site suggests? I’m in go mode and I’d love to keep going but I was wondering if there’s a reason behind taking it one day at a time.
– Stephen

First of all, I’m strongly considering doing a revision of my “31 Days” series in a few months. While I still think the series is great, some of the elements could use a revision mostly due to timeliness.

So, your first question: it’s really okay if your long term goals are vague. For me, I’d describe goals on that timescale as “lifelong” goals. They tend to be the kinds of things that I want said about me at my funeral, like that I was a good member of my local community or that I was always there for my family and so on.

For your second question, you can certainly push through a bunch of the steps in a day if you’d like, but many of them are intended for reflection, which isn’t something you can do immediately. Thinking about something for a minute or two in front of a computer is much different than having it cross your mind a bunch of times throughout the day (or two or three days), when you’re in the shower or about to go to sleep or in the middle of your commute or when your mind is wandering a bit at work. Those kinds of deeper reflections are much more likely to hit upon the real truths of your life, which is what you’re really looking for with long-term goal planning.

Q2: Financial advisor for young professional?

I am a 23yo young professional, who has recently started earning good money after graduating from university. I have always been pretty savvy with my money, building up a nice nest of savings over the years, and am constantly looking for extra jobs to supplement my salary.

Recently, I went for a consultation with a financial adviser, for some direction with my savings to date: ~$40,000. He is adamant that income protection (or income insurance) is something I should have (to be honest, I had never heard of this before). Could you please tell me your thoughts on this, especially from the point of view of my age and my salary ($57,750)?

Also, how do I find a good, reputable, trustworthy financial adviser? I like the one I have found, but am aware he is a slight salesman type, and of course, I am rather wary with my hard earned savings.
– Lisa

In general, I don’t think it’s that useful for younger people to have a financial advisor. Financial advisors tend to be most valuable in specific situations, like when you’ve got a huge unexpected windfall or a really weird situation that you can’t find any information about or when you have a huge amount of money in the bank. None of those really apply to you here.

Income insurance is very similar to long term disability insurance in that they both step up to the plate in the situation that you’re disabled and unable to work for a long period of time; in those situations, the insurance kicks in and replaces some portion of your salary (as specified by the benefit of the policy). Selling this kind of policy to a single person in their twenties seems like overkill to me, as you’re among the least likely to suffer a long term disability any time soon and you don’t have any dependents. Unless you have tons of excess income and aren’t actively saving any, I’d pass.

If you’re looking for a good financial advisor, start by looking for a fee-only advisor. I’d also start by talking to people in your social network, especially those whom you trust, and following their lead if they have an advisor that they trust.

However, at your age and with your financial situation, I don’t feel as though a financial advisor will really help you enough to be worth the cost. You’d be far better off going to the library and getting some good books on investing and reading them yourself. If nothing else, you’ll have a far firmer understanding of what the advisor is proposing and whether or not that proposal really makes sense for you.

Q3: Right time for IRA?

Late 20s reader here! I have a retirement account question for you. I’ve saved about $20k for retirement so far (401k), but I have always been very risk averse, to the point where my savings account (a liquid, available asset) is more than double that amount. In September 2017, I expect to be in law school and will need to take out student loans to get through, since I plan to work only part-time and put schoolwork first. I’m currently debt-free (e.g. student loans paid off, no credit card debt, no car), and I pay off my credit card in full each month. I usually have $300-500 left over each month (I sometimes work at a bar on weekends), and I just dump it into my savings account.

My question: should I open up an IRA on my own, and start putting money in that as well? I realize now that $45k is way more than I need in a regular savings account. I do not have plans to purchase a home or get married for at least 5 years. I live in a city, so also have no need for a car. I feel like I should be putting my leftover income elsewhere– I just can’t figure out where.
– Melinda

Given that you are only in your late twenties, you already have $20K saved for retirement, and you’re facing law school in the very near future, my recommendation to you would be to use that money to minimize the cost of law school in whatever way makes the most sense in your situation.

I’m assuming, of course, that you will be financing law school via loans. If that’s the case, the money you have in savings will directly mean lower student loans for law school for you, which means less debt hanging around your neck when you graduate.

I consider lower debt to be more important than additional retirement savings for someone who is already on pace for where they should be with retirement, and you’re roughly in that area. I usually recommend that people have one year of salary saved in retirement by their mid 30s if they’re hoping for a strong regular retirement or a slightly early one. You’re definitely in line with that.

So, if I were you, I’d put that extra cash into law school and get lower student loans.

Q4: A job without challenge

I have what most would consider a great job. I work from home and occasionally have to do a little bit of travel. This year I will make $140k, next year it will be closer to $170k. My job isn’t very demanding. Most days I find it hard to fill my time with work and wind up spending a lot of time doing work around the house. Most of my actual work consists of attending phone meetings and putting together technical documents for others to use in yet more meetings. Here’s the problem…I hate it.

Day after day I feel like I’m not doing enough, even though all of my coworkers and higher ups keep telling me what a great job I’m doing. I have an extensive technical background in IT and presales, and I can feel my skills atrophying. I have talked with my boss about taking on more challenging work, but this is the job, and there is no more challenging work. I can look for other opportunities within the company that are a better fit for me. I don’t want to leave the company because it is a great company, and I have stock options maturing yearly for the next 3 years. I’m also acquiring a lot of industry and company certifications that will benefit me in the future.

I have been considering taking on side work, but my work schedule can change very quickly, making it difficult to plan side work in advance. Also I do have a job to do, no matter how easy it is, so I need to be available during normal business hours. There has to be a way I can maximize the opportunities that this job affords me while keeping my sanity, right?
– Mitchell

If I were you, I’d get involved in social media and online communities related to your profession. Get on Twitter, Facebook, LinkedIn and so forth and connect with people in your career path, but more importantly than that, go on sites like Quora and StackOverflow and get involved there.

The goal for you would be to build a name for yourself as a knowledgeable person in your field, whatever you desire it to be. You can do that by being friendly and positive while answering lots and lots of questions about issues people have in your field. You can turn that into a professional blog or a Youtube channel if you prefer. The idea is to dig into tough questions that are actually demanding of your skills in some fashion.

Since I don’t know exactly what you do, there may be volunteer projects or open source projects you can get involved with. Are there ways you could apply the skills you want to keep strong in a volunteer fashion?

These opportunities are all very flexible in terms of time. You can work on them when time allows and put them gently aside for a while when things get more challenging.

Q5: Short term credit improvement

I am a student applying for a loan with my mother as a consigner so my credit score is crucial. We will be applying next month. Since I have a short credit history my score is 580. Will applying for my first credit card hurt me or help my credit score for applying for this student loan.
– Benjamin

In the short term – like the next month or two – your credit score will go down a little bit if you apply for a credit card. That’s because “pulls” on your credit history – maning when a company takes a look at your credit history when you apply for a card – have a short term negative impact on your score.

That negative impact fades very quickly, though – over the course of a few months. After that, your first credit card will usually be a positive for your credit score, as it will improve the length of your credit history and your debt-to-credit ratio.

Given how close this is to your loan application, I don’t think that applying for your first card is going to be a net benefit, especially since it is not a guarantee that you’ll receive it.

Q6: Basic personal finance materials

Please can you recommend a simple set of materials online? I am 70 now and must get my finances in order for the road ahead. I want basic ‘organize your financial life at the elementary level.’ My husband did finances for us… then left, then died. Our kids got half my retirement as part of his estate. I have a paid-for home, a rental, a portfolio with TIAA-CREF and a couple of small retirement accounts from rogue employment that I left alone. Materials to help me get organized before I go search for a professional is what I am looking for.
– Claire

I’m not 100% sure what you’re looking for, but here are some really good resources that cover the basics of personal finance that might be appropriate for your situation.

Family Finances is a course taught at Utah State University that covers the basics of personal finance thoroughly, including retirement accounts, property ownership, and so on.

Money 101, created by the Colorado Department of Education, is another very high quality set of resources presented in a similar class-like format. Although you can create an account here, you can also work through the entire program without an account if you prefer to keep your materials offline.

The “investing and personal finance” section of the Denver Public Library’s website is a really good selection of additional resources that might meet your specific needs.

You may also find that a financial advisor of some kind is more in line with what you are looking for. If that’s the case, I strongly encourage you to look for a fee-based financial advisor and I’d look around your own social network for suggestions.

Q7: Downsides of saving heavily

What do you consider to be the downsides of saving a large portion of your income? I understand the obvious give and take – you’re giving up lots of little things now to have a lot more freedom later. What other downsides or cons do you see?
– Anne

Well, for me, I don’t really view losing forgettable little things as a disadvantage. It bothered me at first to give up some of my little treats, but I quickly realized that I barely remembered them when I gave them up and that it really made no difference at all in my life.

If anything bothers me, it’s that sometimes we do turn down bigger opportunities. My wife and I have long discussed a family vacation to Europe. The thing that has kept us from doing it is the cost of the five of us going to Europe for any reasonable length of time. We’ve found some great pieces of land in our area that we could have purchased if we really stretched our finances, but between the property taxes and all of the other expenses, we would literally be pushing off our other plans for many years and it just isn’t worth it on the whole.

We’re pretty happy with the balance of things in our life.

Q8: Cost of shaving versus beard

Is it cheaper to be clean shaven or to have a well-kept beard? I’d imagine it would be cheapest to have an unruly beard and never clip or shave or maintain it but that’s not an appearance many guys want to have. I think a well-kept beard would be cheaper.
– Daniel

I had a beard for a while and I learned that they were extremely low cost to maintain after the initial cost of a beard trimmer. I still had the need to use a razor to trim things up as the beard trimmer’s edging tool wasn’t perfect, but I just used the razor a very small amount every few days. I suspect overall that it is cheaper than remaining clean shaven, although remaining clean shaven really isn’t all that expensive.

However, I found that it took me more time to maintain a well-kept beard than it did to remain clean shaven. This is largely due to practice, since at this point I could practically shave with my eyes closed.

For me personally, it mostly came down to what appearance my wife preferred, and she preferred the clean-shaven look.

Q9: Migrating large CD collection

I have a collection of about 1200 CDs that I’d like to migrate to our computer. Is there a simpler way to do it than just putting in a CD, copying it, taking it out, putting in another CD… repeating 1200 times? Are there services that do this? How much do they cost?
– Susan

There are services out there that will rip them for about a dollar each, but to do so you’ll have to provide an external hard drive to store all of the files on, so that will have an additional cost of $100 or so for a 1 TB external drive (which is plenty big for this project).

You’ll probably want to have the files ripped to ALAC format so that they don’t lose any quality in the process. From the ALAC files, you can make mp3s for use on your portable music device. You’ll need about 1 GB of storage for every 3 CDs if you do it this way.

If you don’t mind losing some sound quality, you can have them all ripped straight to mp3 and it won’t take nearly that much space.

As I mentioned, there are services that will do this for about $1 per CD, like this one. You might also want to talk to any local computer repairpeople, especially people who do this as a small side business, whether they could do it or could recommend someone to do it. You may be able to find a high schooler or college student in your area who would do it for $0.50 or $0.75 per CD.

Q10: Cutting up credit cards

Watching this TV show where people are cutting up their credit cards. Is this a good idea? Why not keep them and just put them somewhere safe?
– Nina

I think the appeal of cutting up credit cards comes from the finality of it. You can’t “un-cut” the credit cards. They’re in little bits!

However, in terms of practicality, it probably does make more sense to put your cards intact in a safe but difficult to access place, like a safe deposit box.

That way, if there is ever a reason that you might actually need the physical card in the future, you could retrieve it.

Q11: Philosophical reading list?

I like how you more than other bloggers write about personal finance from a philosophical perspective because it really is more than just dollars and cents. Do you have some recommended books on philosophy and personal finance?
– Fid

I tend to be of the perspective that personal finance is heavily tied into all aspects of life – our personal life, our relationships, our professional life, our intellectual life, and so on. It’s a thread that runs through everything.

Thus, when I read the philosophical books and articles that I tend to enjoy the most, they encourage me to reflect a great deal on my own life and thus on my finances because of personal finance’s threadlike nature through my life.

I find a lot of value in the works of the Stoics, like Letters from a Stoic by Seneca or Meditations by Marcus Aurelius. I also really like the Transcendentalists from the 1800s, including works like Self Reliance and Other Essays by Ralph Waldo Emerson and Walden and Civil Disobedience by Henry David Thoreau.

I found all of these books incredible reads and I return to them all of the time.

Q12: Saving up for first home

My husband and I are 24 years old and we just paid off our student loans. We do not have any other debt. A few months ago, I read the article below and we are planning to follow the investment strategy described in it. Would you advise changing the proportion of money going into these low-cost index funds based on our age? We are comfortable with aggressive portfolios.

“20% large-cap domestic stocks
20% medium-cap domestic stocks
20% small-cap domestic stocks
30% international stocks
10% bonds”

Here is the article I’m talking about.
– Angela

That article is one of my earliest ones from The Simple Dollar, as I originally wrote it many years ago. While the core idea is still good – diversify and be somewhat aggressive when saving for a very long term goal like a dream house.

What would I do differently today? First of all, I’d probably only contribute to two things – one would be a single stock fund that includes all domestic stocks (large-cap, medium-cap, and small-cap) all in one (like the Vanguard Total Stock Market Index). All of my contributions would go into that fund if my target date were more than ten years away.

If my timeline was shorter than that, I’d put my money instead into either bonds (in the form of a bond index fund) or a savings account. You can typically get a somewhat better return with the bond funds, but there’s still a little risk involved. On the other hand, with cash your money is insured against loss up to $250,000. This is because over timeframes shorter than ten years, the stock market gets very very volatile and you start to run a significant risk of losses over that period.

Good luck!

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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