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. Handling increase in income
2. Comparing pre-tax and post-tax contributions
3. Putting a windfall into stocks
4. Filing jointly or separately?
5. Retirement savings in up market
6. Low end rice cooker recommendation
7. Tired of fear, uncertainty & doubt
8. Cheap version good enough?
9. Going out of business sale?
10. Training my replacement at work
11. Oven ready lasagna noodles
12. Government shutdown panic
One of the most important things that I’ve found for my own work is the use of ambient noise and ambient music to help me focus on what I’m doing. It’s really amazing how much of a difference that it makes in terms of keeping me focused.
I’ve become so used to using ambient noise and music over the last few years that I began to actually doubt how much of an impact that it had, so as an experiment, I went for a week without using it. What I found was that I felt like I was working at half speed on every intellectual or creative task I was doing, from reading and learning to writing and brainstorming and outlining. I got about 40% less work done over the course of an entire week from working in silence or listening to pop music or podcasts versus listening to ambient noise or ambient music. Seriously. I measured it by finished word count, potential ideas produced, articles read, and a few other ways that I track things. I just worked at a much slower pace without it.
I use two different tools for ambient noise and music, and I alternate between the two to mix it up. For ambient noise, I just turn on , which consists of ten hours of the audio of an icebreaker ship. When I want ambient music, I use , which I also sometimes use while meditating, too.
I hope these resources help you out when you’re trying to study or do creative work! They certainly help me out!
On with this week’s questions!
With the implementation of the new tax law, between my husband and I we are bringing home an extra $200/month. Woo hoo! We both have WI pension plans. I have a pension from the state of MN as well, a 403b which I currently contribute 3%. I plan on taking my state raise this year (4% increase) and applying it all towards my 403b so I will be contributing 7% total. My husband is planning on opening a deferred comp plan within the next month as well. We have no credit card debt. We have a mortgage, 2 car loans ( one is almost paid off), and about $13,000 in student loans. We are 35 and have one kid and no plans for more children. Should we take this extra money and contribute more for retirement or use it pay down debt?
If you have any high interest debt, I’d pay that off first and foremost.
Once that’s out of the way, I would sit down and think about what your plans are and how stable your life is right now. Are your jobs strong and stable? Are you spending less than you earn even as you pay down those remaining debts? If so, I’d put it into retirement.
If you’re struggling to make ends meet as it is, then I’d lean more toward using that money to get rid of a few of the debts for now. Treat them as extra debt payments and aim for the one with the highest interest rate.
Hey Trent, was hoping to get your opinion on my way of looking at retirement savings percentages. I believe that the most common montra out there now is to save at least 10-15% of your income towards retirement. If you are using a Traditional 401K or IRA that is a fairly simple calculation because it’s based on pre-tax dollars. So essentially if you make $50K per years, then 10% towards a Traditional account would be $5K. But my question is what if you are contributing to a Roth IRA or 401K where you are using after-tax dollars to fund the account. Do you look at your contributions as a percent of your gross salary like you do with a Traditional account or do you look at your contributions based on actual taxable/take home dollars? Same $50K salary with 20% taxes removed means take home pay is $40K. I’m maxing out a Roth with $5500 a year. Am I contributing 11% based on gross or am I contributing 14% based on after-tax?
In general, the safe way to calculate this is to use gross income and gross contributions. You’ve already paid the taxes on Roth contributions and won’t have to pay them later, so that is, in effect, retirement savings as well.
However, that means you’re looking at ALL contributions through the filter of gross income. This means that you calculate it as gross income, but you also count the taxes you paid on any after-tax contributions you paid. So, you’d add the $5,500 to the 401(k) contributions the income tax you paid on that $5,500.
Again, all of this is just for guidance. If you’re at 14% one way or 11% another way, you’re fine. I think the goal should be that you’re saving at least 10% no matter how you calculate it and you’re doing that.
Normally, we put money into our Vanguard account (all stock index) on paydays when we have extra to deposit, regardless of what the market is doing. However, we happen to have a pretty large lump sum to put in right now (money set aside for something it no longer needs to be set aside for), and I’m thinking about waiting until the inevitable recession after all of these constant record highs the last few years.
I’m normally a pretty anti-“play the market” guy, for many of the same reasons you reiterate frequently, but in this case it makes sense to me because this isn’t money I’m going to be taking out and putting in constantly, it’s going to be staying in for the long term; I won’t be worried about hitting right on a true minimum, I just feel a bit odd dumping this much in at once when I can be about 99.9% sure the market will fall noticeably past this point in the future. I don’t necessarily need to wait until it hits a true minimum anyway, Normal bi-weekly/monthly paycheck deposits will continue to dollar-cost-average by going in immediately as normal. Thoughts?
I think the absolute first thing you should do is sit down and decide what your goal is with this money. What are you intending to do with it?
If this is purely a “when something comes along” type of fund, it should be in something very low risk, because that “something” could come along tomorrow.
If you have another kind of goal that you’re thinking of, whether it’s retirement or something else, you should invest according to how far out it is. If it’s more than ten years out, you should put it in stocks no matter how the stock market is doing.
If your goal is less than ten years out but not in the super near future, then I’d probably still keep it in something pretty secure, but there’s an argument to be made here about splitting it up a little between safe investments and aggressive ones.
To summarize, figure out what you’re going to be doing with it first. If you’re certain that it’s for something that’s more than ten years out, put it in the market regardless of what it’s doing. If you’re very unsure or using for something that’s less than ten years out, keep it in something safe.
My husband and I were married in September 2017. How do we figure out if we should file our taxes this year as married filing separately or married? Also how do we both go about updating our W-4 withholding, considering each other as dependents?
Without a full picture of your finances, I can’t give you a good answer. What I can tell you to do is either get a good software package for calculating your taxes – my personal preference is TurboTax, but most well-known packages are fine – and let it figure it out for you.
The reason for a software package is that it will automatically do the math on both methods of filing and tell you the right way to do it that’s both legal and saves you the most money, which is the way you want to file.
If you don’t fully trust a tax software package, then you should take your taxes to a tax preparer. Doing them by hand is very time consuming, especially when you’re probably going to want to prepare it both ways to see which has the best results.
I retired in 2010 with a nice healthy severance package and about $400K in my 401(k) plan. I was 63 then and 70 now. I have lived off the severance package and proceeds from home sale since then without touching the 401(k) and left it almost entirely in stocks. I was hoping to live out my life off of the savings account and still have 5 years more or so.
Right now I don’t know what to do. My 401(k) is approaching $1 million. I spend about $30K per year and I have about $145K in savings. My 401(k) is very aggressively invested almost all stocks. I am 70 years old. Should I make my 401(k) less aggressive or leave it there?
I am a widow with one child who is just wonderful and I want to leave all assets to him, his wife, and their kids.
My thinking is that any portion of your 401(k) that you think you may need in the next ten years should be in something conservative, and everything beyond that should be in something aggressive. Assume you’re living forever.
So, what should you do? If I were you, I would move about $150K of the 401(k) into something much safer (that’s five years of living expenses, the five years you have in savings, adding up to ten total years of living expenses in something safe), like bonds or cash, and let the rest sit. Each year, move about a year’s worth of living expenses from aggressive investments into something safer. Social Security will definitely help here, but I’m not 100% sure what kinds of benefits you receive from it, so I’m ignoring it. You’re probably safe moving a little less into conservative investments, but this plan will keep you quite safe.
Ignore what the market is doing. The market will go up sometimes and it will go down sometimes. It is very difficult to tell where it is going in the future, especially in a timeframe longer than ten years.
I’m assuming, of course, that any and all dividends from your aggressive investments are being rolled right into more of those investments. I’d leave that in place, too.
You will have to live to an absurdly old age for this plan to ever run dry unless the US economy completely falls apart in an unprecedented way. My belief is that the best thing you can do for your son is to make sure you are never a financial burden to him and his family, and this plan should essentially insure that.
I have been following your recent suggestions and watching the local Goodwill and SA for a rice cooker but I haven’t found one yet. I love eating rice but rarely make it because it’s not convenient in my life but a rice cooker would really help with that. I have a $50 Amazon gift card I received for Christmas and have decided to just buy a new one. What do you recommend in that price range?
So, confession here: we are lucky enough to have an amazing Zojirushi rice cooker, one that does an incredible job on rice of all kinds and oatmeal and we highly recommend, but it is significantly outside of your budget. It’s a few years old and I can’t find an exact match for it on Amazon (it appears to be an older model). Before that, we literally used a Salvation Army rice cooker – I think it was a Panasonic.
Since I don’t have specific experience with rice cookers in your range, I went and looked at a few of the resources that I trust regarding such things – Consumer Reports and Cooks Illustrated. I checked out some of their recommended models, particularly ones they both liked, and sought one that comes in below $50.
My recommendation, then, is the . It seems to get good reviews all around and is a nice size for a single person or even a small family. Plus, you’ll still have $20 on that Amazon gift card!
I am getting really tired of reading articles about people panicking because the stock market is “too high.” It’s always the same thing! It’s been going up for X years and that’s just too long! And the advice is either just stay the course or ridiculous panic! I think it’s all politically motivated anyway. Please don’t include questions like this in your mailbag.
Jerry, the reality is that a lot of the mailbag questions I get right now have to do with how high the stock market is. I actually filter out quite a lot of these types of questions because they are kind of repetitious, but if I don’t have one in my last mailbag or two, I’ll get a good half-dozen questions about it in the ensuing week. I try to answer what people ask.
Besides, I think the current stock market is a great illustration of the concern that many people have about investing in the stock market. It’s a scary place. It’s a place where you can ride a run of several years of 15% gains only to see the bottom suddenly fall out like what happened in 2008. That’s scary to a lot of people.
I don’t advocate for market timing, but I do advocate that people not put their money into the stock market if they can’t emotionally handle that kind of a drop and if their investment isn’t a long term investment. A person in their thirties should absolutely have a lot of their retirement in the stock market because it’s a long term investment, for example, but a person in their sixties, particularly a person who is skittish, might not want to do the same depending on their specific situation.
In other words, the decision about whether to invest in stocks shouldn’t have anything to do with the current market, but with the timeframe of your investment and your personal risk tolerance (because poor risk tolerance can lead right to locking in a bunch of losses). This is a moment in time where that point can really be hammered home, and a lot of people are thinking about it.
When do you know if the cheap version of something is “good enough”? A friend had a horror story recently about how their cheap baking dish exploded in the oven ruining dinner and making for a big cleanup. That wouldn’t have happened with a good baking dish. But if you buy everything high-end you go bankrupt. How do you know what to do?
For me, if it’s something inexpensive with a relatively low risk involved if it breaks, then I try the cheap version first. I use store brand versions of a lot of household supplies, for example.
If it’s something expensive or something that could cause a real problem if it breaks, I usually invest the time to do some real homework on it. I look at as my first line of defense and often dig deeper into reputable publications within that specific niche as well. This usually means a trip to the library for me – I almost always have a thing or two to look up in their magazines each time I visit the library!
As a general rule, I tend to trust Consumer Reports‘ “best buys” for a particular product. I’ve found that those items almost always do the job above and beyond what I need with little risk involved, and they tend to save quite a bit off of the highest end items.
There is a Toys R Us about 1/4 mile from my apartment that’s going out of business. How can I take advantage of this and either save some money or maybe make a little?
Making money off of a Toys R Us going out of business is tricky unless you know the value of toys in your head or are willing to invest a lot of time in there wandering around checking eBay values. Buying random toys at a 30% off rate isn’t going to be a big money maker.
Having said that, a toy store going out of business can save you money in a few easy ways. It might be a great time to do a little bit of super early holiday or birthday shopping for a child in your life. If you have children or nieces or nephews or grandchildren, especially young ones, this can be a great opportunity to snag some gifts for them. (Just be sure to let their parents know what you’ve snagged so you don’t end up with a duplicate non-returnable item.)
Another approach is to talk to any parents/grandparents/aunts/uncles/guardians in your life who may actually have a use for this sale and offer to be their “mule” as a nice favor or for a few bucks. They can give you a list of things to look for and you can go in there and buy them at a nice discount to save them some money. If nothing else, this would be a great appreciated help for some of the busy parents you know.
My company is downsizing and my position is disappearing. I’m supposed to spend my last three weeks training this guy who is supposed to now do my job and frankly I don’t [care]. What can they do to me if I just show up and sit there and do job searches instead of helping him?
They’ll probably still pay you, but any recommendation you get from them will probably be a bad one, which will make it harder to find your next job. If you’re planning to stay in this field, the reputation hit you’ll take from doing this will probably cost you far more than you’ll gain.
A better approach here is to do your best to train this guy. It’s not his fault he’s in this boat with you. In fact, he’s probably disgruntled that he’s being handed these extra tasks and isn’t thrilled with this either. Rather than hanging this guy out to dry, commiserate with him. Do what you can to get him into a good spot when you’re gone.
Not only will this make you look really good in this person’s eyes, it will also reflect positively in any recommendations you get from the company and might even open doors for you. You may just find that if you’re doing this well, they may end up finding another position for you or else help you find a new one. If nothing else, you won’t have burned bridges here and you’ll definitely have at least one career ally moving forward.
I love making lasagna but it is such a time consumer that I don’t make it very often. I thought the no boil noodles would help so I tried them and it made everything gummy. Is there some trick to making them work? Thought you might know as a kitchen efficiency whiz!
I wouldn’t remotely call myself a kitchen efficiency whiz, but I do enjoy cooking at home.
I have tried no-boil noodles myself in lasagna and I generally find them to be gummy, too. The rest of my family seems to like them just fine, but I vastly prefer the texture of regular noodles.
Now, I have found that they get a lot better if you just partially boil the no-bake noodles. I did this on accident once and boiled them for just a couple of minutes before realizing what I had done and then decided to use them anyway, and they were just fine. At that point, though, why not just use regular noodles?
I’ve also tried just cooking the lasagna using ordinary noodles that are completely uncooked and just smothering them in sauce on both sides. This seems to work reasonably well – I like the texture better than “no-boil” noodles, anyway. You might want to try this. Just make your normal lasagna, put the dry noodles on top of a layer of sauce, then do another sauce layer right on top of any dry noodle layer. Bake as normal, because the boiling sauce will cook the noodles right inside the pan.
I currently work for the DoE as a technical assistant. I make a very nice salary that should be more than enough, but when the government shutdown happened I took a look at my money and realized I was going to hit a major problem if things didn’t get back up and running in like two or three days. That’s obviously bad and it set me into kind of a panic. I started reading about money and searching around and came to your site. I don’t know what to do next or where to start.
So, I received three different variations on this question. It appears as though the government shutdown and the specter of more of them in the near future shocked a few people into thinking about their finances.
So, where can you start? The absolute first thing you should do is start building an emergency fund. An emergency fund is simply money stowed aside in a savings account somewhere that you don’t touch until there’s an outright emergency – like, say, a prolonged government shutdown. The easiest way to build this is to get an online savings account from a reputable online bank like and set it up so it does an automatic transfer each week from your main checking account into this emergency fund. $20 is a good number to start with; a little more is nice. Then, just forget about that account entirely until an emergency happens.
That’s a great first step, but it’s just that – a first step. The most important thing that people should be doing with their finances is a much bigger and, often, much harder step. You need to spend less than you earn. Every month, every year. The only time that you shouldn’t be spending less than you earn is when an emergency occurs, at which point your emergency fund is there to help.
If you’re doing this, your credit card balances will no longer be going up – they’ll be going down. As will your other debts. Eventually, they’ll go away, at which point it becomes trivially easy to start saving for big long term goals like retirement.
How do you mechanically do that, though? The most important step in that process is to sit down and really look at your spending. Where is that money going? Get out your most recent credit card bills and bank statements and start looking through them. How many of those transactions do you just not remember at all? Or, you see it and you sort of remember it, but not in any clear memorable way? Most of that spending is a giant waste. You’ve essentially tossed money away on completely forgettable things and because of that found yourself utterly panicking right now. That’s a very, very bad trade.
So, if you’re seeing a lot of transactions where you don’t even remember where the money went or it seems completely dumb in retrospect, start intentionally cutting out most of that stuff. Do you really need to stop at the convenience store? Will you really care about this purchase two days from now? Start asking yourself that about everything you buy.
There are lots and lots and lots of steps you can take to start mopping things up. That’s why the personal finance section of the library and of your local bookstore is loaded with books on getting your money straight. Go to the library and pick out one that speaks to you and check it out. The core advice in most of them is pretty good. If one isn’t clicking, go back and try another one. The one that clicked for me was Your Money or Your Life by Joe Dominguez and Vicki Robin. Avoid any book that talks about unrealistic-sounding results, like “You Too Can Be a Millionaire By Age 30!”
That should be enough to get you started.
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.