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
should I contribute?
income and savings rate
Prime? Hulu? Netflix?
people renting everything?
insurance for average person
7. New versus
late model used?
8. Good use
for spare change
washer balls work?
Inexpensive dog food
There are two times during the year when I seem to be prone to
getting a cold. I sometimes get one in the late winter, around
February or March or even into April sometimes. I also sometimes
get one at the start of the summer, in early June. I seem to have
one of those early summer colds.
I’m not quite sure why this is, but it’s pretty consistent
for me. Most years, I really only get one cold, but it’s almost
always near the end of winter or right at the start of summer.
Of course, five or ten years ago, I’d get three or four colds
per winter, so I’m definitely in a better spot than I used to be.
If you consider that I live with three school-aged children and a
school teacher, they bring home every germ under the sun, so it’s
kind of inevitable that I get the occasional cold.
On with the questions.
I recently switched jobs and this is my first job with a
401(k) plan. I am 29 years old. I want to contribute to the plan to
start saving for retirement but I’m not sure how much to
contribute. Contributions are by percentage of your pay. The
employer makes a contribution on their own, not
Honestly, I would make the largest contribution you think you
can possibly stand. Start off with a 10% or 15% or even higher
There are a few reasons for this. First of all, if you start off
with a high contribution, you don’t get used to a bigger
take-home paycheck. Your life routine will adjust to whatever your
take-home pay is, so if you don’t give yourself a window to get
used to a somewhat higher paycheck, it won’t feel like a
“cut” if you were to decide to start saving later. Plus, the
only expenses you’ll really lose are the least important ones,
the forgettable ones that don’t matter.
Second, a high contribution when you’re young is smart
financially because it gives you a large amount in your retirement
account early with a lot of years for the power of compound
interest to make it grow and grow.
Third, if you decide later that your contribution is too high,
cutting your contribution can give you some breathing room. It’s
a lot easier to loosen your belt a little bit than tighten it.
Make a big contribution and don’t look back (unless you have
to). Trust me, you won’t miss it, and even if you were to miss
it, you can always dial it back a little later.
Liked your article on alternatives to net worth
calculation. Question about savings rate: how do you handle
Investment income is a type of income, so you should include it
as part of your overall income. If that investment income is rolled
right into more investments, as it often is in savings or
investment or retirement accounts, then that amount should also be
included as part of what you saved.
In other words, once you start building up some money in
investments, your savings rate should naturally go up, as you’ll
be earning interest and dividends that are naturally rolled over
into more investments.
I would not include the natural increase in the value of your
investments, however. If you buy something for $50 that goes up in
value to $100, I’d leave it alone. When you sell or withdraw that
investment, however, I would count all of that as income.
Scott Adams talks about systems over goals. This sounds
very much like that. You encourage people to develop systems
(automate savings, buy store brands, develop inexpensive hobbies,
learn to cook) that will help improve their finances. Goals
inevitably leave you feeling like “now what?”. Systems just
Scott explains his systems
idea here. His idea of a system is that you do something every
day or turn something into a regular behavior that is likely to
produce better outcomes than what you are doing before. He uses the
example of making better food choices and that acquiring the
knowledge of better food choices and then consistently applying
that knowledge is a “system” that will inevitably lead to a
My view is that this is just goals in another form. You’re
still aiming for something, even if it’s just “I want more
professional opportunities in my life.” The big difference with a
system is the place of focus, as the focus with a system is mostly
on a daily activity or habit or routine rather than the big end
For example, a normal weight loss goal might be “I want to
lose 50 pounds this year,” whereas a weight loss “system”
would be more along the lines of “I want to acquire better
knowledge of what foods are healthy every day and consistently
apply that knowledge.” They’re both goals, as they both have
clear delineations of what success and failure are and they both
set a direction for your life. The difference is the time scale and
the specific expectation of a long term result. A system is more
oriented around a very short term result – did you do this thing
today? – and the idea is that consistently doing that short term
thing will generate long term results you’re happy with.
I tend to think of the “system” idea as being much like the
behavior-altering system described in one of my favorite books of
the last few years, Triggers by Marshall Goldsmith. I highly
recommend you read my
article discussing Triggers if you haven’t already. It’s a
system I use in my life to great effect.
We are interested in eliminating our cable bill. The
only channels we really watch are the news and then a couple of
shows that we record with our DVR. We have fast internet and the
internet people said we can have several people streaming video
with no problem. We are looking at streaming services but don’t
know what to choose. What about Netflix or Amazon Video or
The big question you should ask yourself is whether or not you
want to replace the cable news with another news service or
literally retain that cable news channel. If the answer is yes,
your best option is Sling,
which lets you subscribe to a fairly small roster of cable channels
(that includes CNN and MSNBC, but not Fox News) for costs ranging
from $15 to $45 a month and includes a streaming on demand service
for a lot of the shows on those channels.
When comparing Netflix and Amazon Prime Video and Hulu, it
really depends on what original programs you’re most interested
in. They all have some very good original programs specific to
their service. Honestly, what I recommend that people do is
subscribe to one service for a few months and binge watch their
original programming until you feel like you’ve watched or caught
up on everything of interest, then deactivate that account and jump
to a different service for a while and binge on their original
programming. Amazon has the additional advantage of offering Prime
shipping on Amazon products with their service, but I think Netflix
has the best and widest variety of shows and Hulu is probably the
best bargain while still having lots of good programs (especially
since you can get both Hulu and Spotify – audio streaming – for
a combined monthly price lower than Netflix alone).
As I said earlier, I’d pick a service that has a few shows
you’re interested in, sign up for that service until you’ve
watched all of the stuff you’re interested in, then jump to
another service for a while. Having them all is overkill and would
add up to not being much less expensive than cable.
If I were setting this all up for my parents, I would probably
set them up with an over the air antenna to get local channels, a
low cost Sling service so they could watch their preferred cable
news, and one of the other streaming services. This would end up
costing them about $30-40 a month and they’d have more content
than they could ever possibly watch.
What do you think about young people renting everything?
I think it’s a natural response to the economic hand many
people are dealt today when they walk out of college. Many young
people are saddled with a ton of debt leaving college, enough that
even a really good paying job still means many years of debt
repayment. They’re often entering into a career path that
doesn’t offer much stability, as companies will hire and fire
skilled entry level people at a moment’s notice and often only
offer them 1099 positions rather than fully hiring them. Houses,
even after being adjusted for inflation, cost multiples of what
they did back when their grandparents and even their parents were
young. It’s not impossible to win the game, but it’s like being
dealt a 2-7 offsuit with a short stack, to borrow a poker
The most effective strategy, then, is to make yourself as
transient as possible. If you know you’re likely to be moving
around a lot to find work and you know that you can’t afford to
buy a home without putting yourself on an extreme financial
tightrope and you don’t want to have to move a lot of stuff when
you’re moving for work every six months, why not just rent it? If
you rent an item for six months for only a portion of what it would
cost to own it and then you can return it when you’re moving from
Des Moines to Boston or whatever, it actually makes a lot of
In other words, I think it’s a normal response to the economic
reality that many people are facing. They can get decent paying
jobs but they often have little permanence, they’re saddled with
student loan debt, they have to move a lot, and housing prices make
buying a home unrealistic.
Insurance buy wants me to buy “umbrella” insurance.
I make about $50K a year and am single. Don’t own a home or have
much stuff. Seems kind of a waste to me but want to make
Umbrella insurance is “corner case” insurance, for
situations where you’re found to be at fault and the cost is
beyond what your other insurance policies can cover. It’s usually
pretty inexpensive and the reason is that it’s rarely used.
It’s peace of mind insurance that only takes effect in rare
Now, is it worthwhile to buy it? If you have the financial
ability to easily pay for it, it probably means that it’s
worthwhile to do so. A $1 million umbrella policy usually clocks in
at about $15-20 per month. If that’s not a stretch for you, then
it’s probably worth getting such a policy. If it is a stretch for
you, then an umbrella policy is probably not the best choice for
The thing is, 999 times out of 1000, you won’t need it. That 1
time out of 1000, though, makes it so valuable that it’s worth
I was talking to my mechanic about replacing my current
car (2007 Corolla) and asked whether he thought it was a good idea
to buy new or used. He said it depends on the model but didn’t
give details. What’s the best value for the dollar? Used or
How many miles do you expect to be on the car’s odometer when
you sell it? You don’t have to be exactly accurate, but you
should have a reasonable target. 100,000 miles? 150,000 miles?
200,000 miles? 300,000 miles?
When you have that target number, start looking at car prices
based on how much you’re paying per mile that you expect to get
out of it.
So, let’s say you just want to get a replacement Corolla. A
basic new Corolla checks in at around $20,000 from what I can tell.
Then you see one that’s used with 30,000 miles on it for $15,000.
Which should you buy?
Well, if your mileage target is 200,000 – you can base this on
the mileage on your current Corolla that you’re about to trade
off – then you’re getting 200,000 miles for $20,000 or 170,000
miles (200,000 mile target minus the 30,000 already on it) for
$15,000. The new car, then, costs you about 10 cents per mile,
while the older car costs you about 8.8 cents per mile.
In my experience, most of the time, if you have a fairly high
mileage target for your car (meaning you intend to drive it until
it really needs to be sold or traded off because lots of repairs
are coming up), a late model used car tends to be a better deal.
Buying new is only better if your game plan involves trading off
the car at a pretty low mileage, like 100,000 or less. It’s not
always true, but it’s usually true. I use the above calculation
as a quick check just to make sure.
I have a spare change jar on my bedside table. When it
gets mostly full I take it to the grocery store and buy a few
things for meals. Then I go to the self checkout where I’m not
really holding anyone up by just dumping the change into the change
slot. It takes a couple of minutes to check out but I use up a good
chunk of my change jar. Plus I know I’m buying worthwhile stuff
instead of the junk I would probably buy if I just turned it into a
$20 bill or an Amazon card at Coinstar.
This is a pretty good idea, one that I’ve used myself not too
long ago. I had a pocket full of change and needed a few things at
a grocery store (some produce for meals the next few days) that
happened to have a self checkout, so I just dumped in most of that
change and it paid for all of the groceries. It felt like I solved
two problems at once as I got rid of that change and I got the
groceries I needed.
Loose change isn’t really a problem if you have a bank that
will accept it for you, but not all banks do that and if you
don’t have that option, Coinstar is about the only convenient way
to dump a bunch of change. With Coinstar, though, you’re either
accepting a fee to get cash or else you’re getting a gift card to
While this solution isn’t perfect, as you probably wouldn’t
want to buy $100 worth of groceries with this strategy, it’s a
good idea if you need two or three things at the store and it has a
self-checkout. Just take your small change jar with you and pay for
it with that change.
I think you should mention Kanopy on your site. Kanopy
is kind of like free Netflix provided by your local library. The
movies on it are mostly documentaries and lesser known movies, but
it’s free and there’s a ton of good stuff on
I took a peek at this service and it’s basically exactly as
Aiden describes it. It’s basically Netflix that you can access
with your library card (assuming your library participates) for
free. You actually “rent” the movies from the service and you
can watch 15 per month currently.
The selection, as Aiden mentions, is mostly documentaries and
lesser known movies, but I built a list of about fifteen that I’d
like to see just with a ten minute browse or so. I quickly found
films like Marwencol,
Called Ove, Eighth Grade,
Vincent, and Life Off Grid.
Given that the whole thing is free if your library participates,
it’s pretty cool.
Do washer balls really work? $9 for something that does
2000 loads of laundry seems too good.
They work slightly better than washing your clothes with no
detergent or soap at all, at the cost of beating your clothes a
little harder and likely slightly reducing their lifespan. In other
words, I don’t think they’re worth it.
There are a lot of videos out there showing washer balls
producing clothes and sheets that look a lot cleaner than when they
went into the wash, and that’s absolutely legitimate. However,
they’d look that clean if you put them through the washer with
nothing in there, because just running water and agitating clothes
will remove the same dirt and surface stains. In nether case are
your clothes getting deeply cleaned.
If you want a cheap laundry solution, I recommend my own
powdered mix. Just buy a box of soap flakes, a box of borax, and a
box of washing soda, then thoroughly mix a cup of each of those
powders in a small container, then pop in a tablespoon. One
tablespoon of that mix will do a far better job than a washer ball
and it costs about $0.04 per tablespoon.
Where is the cheapest place to get dog
It entirely depends on what kind of dog food you’re looking to
buy. If you’re simply aiming for the cheapest possible calories
for your dog, head down to the local WalMart and buy the jumbo bag
of the cheapest food they have. That’s about the cheapest option
around for dog food, but it’s not particularly healthy for dogs.
It’s the equivalent of people living on junk food.
As you move up in quality, my experience has been that for most
of the mid-level quality dog foods, Amazon has the best prices
around. I haven’t found anything that can beat Amazon on a lot of
the fairly high quality but not high end dog foods. There are times
when good mid-grade dog foods are on sale at the store where the
price beats Amazon, but not consistently.
If you’re getting into the really expensive foods, you’re
probably better off making the food yourself from actual
ingredients, but if you want to purchase ready-made food, you’re
probably looking at buying from the manufacturer directly on their
Do you have any suggestions for starting a website like
The Simple Dollar? I would love to be able to work from
First of all, you’re not going to make much money from a
website without a ton of upfront time invested in it without making
any money at all. I spent several hours a day for multiple years
before The Simple Dollar made any money at all, and a couple more
before it had enough of a following to be able to sustain me full
time even at a reduced income from my previous job.
If you’re not willing to put in that kind of work, you simply
won’t be able to build a website that can sustain you.
Furthermore, it’s actually different (perhaps harder?) today
to pull this off than when I did it. There are more people online,
of course, but there are a lot of people trying to grab their
attention and many people stick to social media or to watching
videos. Your best approach today, from what I can tell, is to build
your following on social media, create monetized content (written,
video, whatever) elsewhere, and link to it. So, you’d build up a
social media following, create Youtube videos, then link to them on
I’m not saying you can’t do this, but what I am saying is
that you need to be willing to create content you love for a long
time and then maybe you’ll be able to do it full time. If
you’re not doing it for the love of doing it, you won’t be able
to sustain it.
That’s not to say there aren’t other models for earning an
income online. I have a friend that builds standalone websites on a
specific topic then gets people to link to them as some sort of
authority on the subject. He puts ads on them and then earns a
little revenue from each of them.
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.
Questions About Retirement Contributions, Umbrella Insurance,
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Source: FS – All-News2-Economy
Questions About Retirement Contributions, Umbrella Insurance, Kanopy, Washer Balls, and More!