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. Figuring out tax call
2. Multiple income streams or one?
3. Setting unattainable goals
4. Best lottery winnings option
5. Credit cards and emergency funds
6. Gear for homemade pizza
7. Strategies for not losing keys
8. Expensive watch worth it?
9. Paying off low interest debt
10. Rich Dad, Poor Dad?
11. Dollar coins
12. Taxes and cash-only businesses
13. Lowball offer on house
14. Setting family summer reading goals
15. Small savings worth the time?
I can tell when spring has truly arrived with my nose and my eyes.
Every spring, when nature returns to full bloom after the cold winter, my eyes become scratchy. My nose feels plugged up. That’s the strongest sign for me that the world is returning to life.
Of course, none of that keeps me from running around in the beautiful outdoors. Spring is here. It’s time to get out there and do something fun!
A few days ago I received a phone call from the IRS regarding my tax filing this year. They told me that I had not paid taxes on $4,600 of income and offered to negotiate my tax bill to $500. I investigated this and can not find any evidence of this income. What steps do I take if I think the IRS is trying to charge me for someone else’s income?
First of all, I’ll tell you right now that this is a scam. The IRS does not make first with people via unsolicited phone call. The people who called you managed to scrape some of your personal information from somewhere and used that information to place a fake call to you posing as the IRS, hoping that you would send them money for fake tax claims.
If the IRS actually wants to you, they’ll you via the mail. There may be some follow-up phone conversations, but that’s all they’ll be – follow-up. The first will occur by letter.
What should you do? Ignore the whole thing. It’s a scam. Don’t waste your time with it. Don’t worry about it. Don’t give a dime of your money or an ounce of your energy to these scammers.
Doubtless you’ve heard the quote “jack of all trades master of none”, particularly in reference to anyone working a second job or having hobbies. Is it better to have multiple income streams, or should one focus on getting a higher paying job first and foremost?
This isn’t an either-or choice, for starters. Many people find ways to earn additional income by building new income streams related to their main career. For example, some people will write books related to their career path, or they’ll record informative videos for YouTube, or they’ll even dip their toes into freelance work. This allows them to simultaneously diversify their income streams while also furthering their current career path. It’s kind of a “double win.”
Even if that’s simply impossible for you for some reason, my tendency would still be to lean toward multiple income streams. I don’t think it’s ever good for a person to put all of their eggs into one career basket. An economic shift can leave a person who does that in a no-win situation as they find themselves, for all intents and purposes, unemployable. A person can also find themselves miserable in a changing field. Having lots of income streams makes it easier to transition to a new field for primary employment.
The only time a singular career might be better than a bunch of income streams is if you’re on a path toward financial independence and are getting fairly close to achieving that goal. In that case, putting the pedal to the metal and squeezing every dollar out of your main career for a year or two is probably better, because even if you lose that job in a few years, you’re either financially independent or close to it.
What do you think about setting goals that are impossible (or practically impossible) to reach?
Let’s say I’m starting a weight loss and exercise program. Is it a good idea to set a goal of 8% body fat, run an eight minute mile, and bench press my body weight? Or should I focus on something more realistic but less exciting like losing a pound a week?
Maybe for the mailbag you could discuss a goal of having $1 million in investments in like five years or something where it would require more than 100% of your income invested each year.
Audacious goals are really really powerful motivators for some people. Envisioning a huge life change can seem incredibly exciting and can convince some people to make real changes to their day-to-day life.
However, I think the real question when it comes to making big life changes is whether or not you have the discipline to maintain it. People can achieve amazing things if they have the self-discipline to keep working at it, day after day, one step at a time.
Is it “better” to have big audacious goals? It depends on what makes you tick. Are you satisfied with swinging for the fences and striking out sometimes, or are you happier with more modest and more consistent successes? Different people thrive on different things.
You win a lottery and the lottery agency gives you two choices. You can either take $1,000 a week for the next 25 years or $600,000 as a lump sum right now. Which do you take?
That’s a tough question to answer because the one that puts you “ahead” depends heavily on what happens to the economy over the next 25 years. It also depends on your own personal behavior.
If you assume that the stock market will return a steady 7% over the next 25 years, then getting the lump sum now is better. You’ll wind up with $3.2 million after that period. $1,000 a week for the next 25 years adds up to only $1.3 million. Even if you invest the $1,000 each week when it arrives, you won’t quite catch up to $3.2 million.
However, if you hand $600,000 to most people, they’re going to do a lot of questionable things with it. They’ll spend it on things that won’t hold any long-term value in their life and quickly deplete the value of that money.
There’s also the age factor. Do you lose the remaining money if you die while on the $1,000 a week plan? If so, I wouldn’t recommend it to anyone over about the age of forty.
That’s why, if I were personally doing it, I’d take the $600,000. If the person were over the age of 40 or 45 or so, I’d recommend the $600,000. If I knew without a doubt that the person was financially responsible, I’d recommend the $600,000. However, for younger people that I didn’t know well, I’d recommend the $1,000 a week.
You are SO RIGHT about not relying on credit cards for emergencies!!!
Last Monday my credit card company called me and there were some bogus charges on my card from California (I live in Virginia). They cancelled my card and are sending me a new one (still haven’t received it).
On Wednesday, my car didn’t start. I had to end up getting it towed with a $1,200 bill attached. Since I didn’t have a credit card, I couldn’t rely on it for the emergency.
Thankfully, I had about $2,300 in my savings account. It took about five minutes to transfer the money to checking and then pay the bill. My savings dropped in half, but that kept me from a real crisis.
A cash emergency fund saved my cookie even though I had a credit card. KEEP A CASH EMERGENCY FUND, PEOPLE!
You’ve almost perfectly described why I don’t trust using credit cards as an emergency fund. They’re just not reliable in those key moments when you really need them.
A bank can easily cancel that credit card, just as it happened to Jenna. It might not be your fault at all, but that credit card could easily become a chunk of useless plastic.
Cash, on the other hand, doesn’t vanish. It’s there for you when you need it, no questions asked.
I could have all the credit in the world and I would still want a cash emergency fund.
What do you use for homemade pizza? I have never made it but every cookbook I look at talks about having pizza stones and a stand mixer and fifty other things. How necessary is all of this stuff? How do you make homemade pizza on the cheap?
We use a set of sixteen inch round aluminum pans that we picked up somewhere years ago. We don’t use a pizza stone. When I make dough, I mix the ingredients in a bowl then knead it with my hands. I don’t use a stand mixer (they’re useful because of their versatility, but not necessary, especially for pizza dough).
My usual recipe for dough consists of just flour, water, yeast, and a bit of salt. I think it’s around 500 grams of flour, 360 grams of water, 16 grams of salt, and 2 grams of yeast. I mix it until it’s a ball, knead it for about six or seven minutes, put it in a bowl to rise for about three hours, punch it down, then let it rise for another 30 minutes or so. I punch it down again, then use it for crust. I spray on a bit of olive oil to prevent the dough from sticking to the pan, then roll it out on the pan and add toppings, then bake it at about 500 F for 12 minutes or until the cheese is just starting to brown a little.
There’s no need for pizza stones or stand mixers or gourmey mixes or anything else for a pretty good homemade pizza. You just need basic ingredients, a simple pan, an oven, and some time.
In the last three years I have lost my car and house keys four times. They seem to either just fall out of my pockets when I’m sitting or else they just go missing from my bag. I’ve had to change locks each time which is really expensive so I am looking for methods to keep from losing my keys. Thoughts?
My first recommendation would be to get a giant keychain with a bunch of attachments on it so that it’s almost difficult to carry it around with you. The bigger it is, the easier it is to keep track of it and notice when it’s missing.
Another option is to simply minimize the keys that you carry with you and carry them on a lanyard around your neck. It’s basically impossible to lose keys if they’re hanging around your neck.
If you lose them in your house, start designating a spot to put your keys, like in a bowl or on a hook right inside your front door.
As for me, I just keep my keys in my front pocket almost all the time. I very rarely take them out, so they’re basically always there.
Ever since I have been in college I have worn the same Casio digital watch. I received it as a Christmas gift and it has worked like a champ.
Several days ago, my boss made an offhand comment that I need to be wearing a more “professional” watch. He’s big on professional dress and often “coaches” us on it (an office full of programmers usually prefer t-shirts with funny logos).
Anyway, his comment has been bothering me. To me the Casio watch looks just fine. Sure, some of the high-end watches look beautiful but to spend hundreds or thousands on something that does the same functional thing as what I’m wearing on my wrist right now seems like a waste. Is an expensive watch worth it for “appearance”? Or is there a functional element I don’t know about?
It depends entirely on whether the people you need to impress in your field are impressed with things like a watch and, if so, whether or not there’s enough financial value in impressing them to make the watch worth it. There’s also the more general issue of whether an expensive watch makes the wearer feel more confident, which it may or may not.
I don’t know enough about your field and, more importantly, your supervisor and coworkers to assess whether or not the watch would make any sort of difference there. I also don’t know whether or not it would make you feel more confident or not or whether that has any tangible importance.
For me, it really wouldn’t be worth the money. The only reason I wear a watch is for pure functionality, not for appearance, and most of the time I don’t even wear a watch. I generally only put one on when my schedule is tight.
My student loans are currently at a 2.5% interest rate. They are variable, but they haven’t changed in a while and probably won’t until the Federal Reserve raises rates again.
My question is whether or not it makes any sense to make extra payments on this debt. With the interest rate so low doesn’t it make more sense to do other things with the money like invest it?
You can probably beat that rate of return in almost any investment you might make. However, that doesn’t guarantee that investing instead of paying off that loan quickly is the right choice. It depends on what you want.
Paying off a low-interest loan like this is akin to guaranteeing yourself a 2.5% return for the next several years. It’s better than buying a CD right now and for the foreseeable short term future. It’s a return that’s locked in – you won’t lose money on it. The return might actually become better than that – and even perhaps quite a bit better – if your rate adjusts upward.
The stock market’s long-term average annual return, for comparison’s sake, is 7%. However, there are going to be individual years – and even groups of years – that are far below that. 2008 saw roughly a 40% drop. With higher average returns comes greater volatility and short-term risk.
It all comes down to your risk tolerance, really. There’s less risk in just paying off the loan, and it’s going to be better financially than just keeping money in a savings account.
Personally, if there’s any chance of significant upward adjustment in the interest rate, I’d just pay it off and get rid of it.
I was really surprised to read your review of Rich Dad Poor Dad. I found it to be incredibly inspirational and it started me on the track to financial and entrepreneurial success. I guess you must not like how he talks about having an actual enjoyable life and not one spent in frugal misery.
There are a lot of personal finance books out there that offer a great deal of inspiration that’s packaged with actual sound financial advice. The actual strategies in Rich Dad, Poor Dad don’t work, and the book disparages a number of tactics that do work while encouraging the reader to buy a Ferrari (?) and calling people who pursue other strategies “hamsters.” (?)
Seriously, go read Ready, Fire, Aim by Michael Masterson if you want a much better entrepreneurial-oriented personal finance guide, or Your Money or Your Life by Joe Dominguez and Vicki Robin for a powerful book on making smart choices with the resources you have.
I would feel more confident recommending a book at random from the personal finance and investing section of your local library than recommending Rich Dad, Poor Dad. Many, many books offer inspiration, and most offer stronger financial strategies.
Do you think that dollar coins are a good idea? Should we be replacing the dollar bill with them?
Personally, I’m a fan of dollar coins. While they cost more per coin to produce than dollar bills, they have a far longer lifespan which makes up for the cost and more (much like LED bulbs versus incandescents).
The only drawback I can think of is psychological. The dollar bill is incredibly iconic, and there’s a sense that if you eliminate it and replace it with a coin, you devalue that dollar in the eyes of many people. It goes from being a symbol of American finance to being a piece of pocket change. That could stir a pretty significant bump in inflation as the dollar bill disappears.
My guess is that is the real reason they haven’t made the migration yet. People like their dollar bills.
One of my cousins has a business where he finds various rare foodstuffs in the woods and in other places. He finds things like wild ginseng, morel mushrooms, and other things throughout the year and sells them directly to restaurants and to individuals. However, he accepts only cash for these things and never reports any of it for income taxes. I have told him that he is committing tax evasion and he says that the government has no interest in his “hobby.”
This makes me very angry. He’s earning an income, but not paying his fair share with that income. He drives on the same roads that I do and uses the same police for protection that I do and relies on the military for safety like I do but he won’t pay for his part of it.
I feel like reporting him to the IRS but I also don’t want to be a “snitch.”
You’re absolutely correct in your assessment. Your cousin is earning income and not paying taxes on that income, and you offer many good reasons why people should be paying taxes on their income. We share a lot of resources and we need to be collectively paying the bills for those resources.
I don’t have much respect for tax evaders. People who do that are using our shared resources – police, roads, well-educated citizens, fire departments, public parks, and so on – without paying their share for them. While I wish there was an easy way to cut those people off from those wonderful resources, there isn’t. Tax evasion is not a victimless crime – literally everyone in America is a victim.
So we come to the real twist of your question: should you “snitch” on your cousin? I’m not going to tell you what to do either way. Questions like this always involve balancing a trusting relationship against lawlessness and there are powerful arguments both ways. My advice to you is to take this question seriously and think about what’s more important to you.
I have read many times that it’s okay to put in a lowball offer on a house and that it can be a good idea if the house has been on the market for a while. How low is lowball though? 20% below asking price? I haven’t really seen any guidelines on this. How low should you go so that the seller doesn’t just ignore the offer?
In my eyes, a lowball offer is anything that’s below the average list-to-sell ratio in your area. In some areas, homes are selling at 98% of what they’re listed at. In other areas, it could be as low as 80% or even lower.
Generally, if I’m making an offer on a house, I would find out the price-to-sell ratio on homes in that area, compare that to the asking price to figure out what it should sell for on average, then knock another 5% to 10% off of that number and use that as an offer.
I think that an initial offer that’s right at the list-to-sell ratio isn’t a lowball at all and is a pretty good offer, one where the homeowner will come back with a higher price and will probably end up selling above that ratio. You should expect that you’ll probably end up buying somewhere near that ratio, so you should offer something somewhere below that.
This summer, we’re going to use the library a lot and encourage family summer reading goals. Do you have any ideas for doing this?
Great idea! Summer goals are something we’ve done in our family for the last few years.
First of all, I’d strongly suggest using “punch cards” or cards that can easily be marked off with progress. Whenever they want a punch on their ard, they ask you to set a timer and they get a punch for every 30 minutes of reading. Completed punch cards earn a reward at the end of summer (maybe a new book or a fun activity of some kind). You can figure out on your own how you want to reward completed punch cards.
We do this with exercise too. When our children were younger, we gave them a “punch” on their exercise card for each quarter of a mile that they walked. Each card had twenty punches on it, so it represented five miles walked. We then offered some rewards for sets of completed cards.
Most of the small frugal tactics I see on Money360 or on other websites simply don’t seem to be worth the time. For example, let’s say that spending five minutes rearranging the dishes to get 10% more dishes in the load saves you a load for every fifty minutes you put into it. That saves you about a buck. Not worth it for fifty minutes of work. Why waste people’s time talking about these things?
Naturally, the example you gave isn’t worth it, but that’s not representative of most frugal tasks that people would actually choose to do.
I generally won’t bother with anything that doesn’t save me at least $8 per hour of effort (and that’s after-tax money, remember). I probably won’t even bother with that unless it’s something I’m doing with my family.
That eliminates a lot of frugal strategies, but it doesn’t eliminate nearly all of them. It’s still way more cost effective to fix a reasonable meal at home instead of going out. It’s still way more cost effective to use LED bulbs instead of incandescents. I even find that things like making my own laundry soap are worth it.
You have to find your own threshold, of course, and it’s good to have one. However, just because some frugal tasks are way below your threshold doesn’t mean that all frugal tasks aren’t worth it.
Got any questions? The best way to ask is to 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.