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. LED versus LCD televisions
2. Handling surge of freelance income
3. Why retire early?
4. Handling a disastrous tenant
5. Buy it for life: watch
6. Cooking and time
7. Insomnia tip
8. Defining reading goals
9. What to do without 401(k)
10. The shock of college expenses
11. Spending down retirement savings
12. Credit card sign up bonuses
13. Closing credit accounts
14. Telling girlfriend about financial mistakes
15. First “chapter books” for kids
It appears as though the trees here have finally recognized the arrival of autumn. On my morning walk, I saw several trees with leaves beginning to change colors from the green of September to the orange and red and brown of October.
I don’t mind the seasonal change, though I do get a bit of seasonal affective disorder (“winter blues”) in the peak of winter. What I really notice, though, is how it changes the behavior of our family.
During the spring and summer, we spend a lot of time outside. We go camping on the weekends, play games in the yard, participate in sports leagues, and so on.
In the fall, when the weather shifts, there’s a lot less motivation to go outside. We still go out, of course, but there’s a shift to more indoor activities. We find ourselves playing more board games and having more movie nights and more “reading afternoons.”
I look forward to the changes, but I will also miss the afternoons of summer spent at a campsite or kicking a soccer ball around in the yard.
There’s always next spring, of course.
Can you explain the difference between LED and LCD TVs and which is better to buy?
LEDs are better, but they generally cost more.
The big difference is how they’re lit internally. LCD televisions are lit with fluorescent lights, while LED televisions are lit with smaller LED lights.
It’s much like the difference between a CFL lightbulb and an LED lightbulb. The CFL is less energy efficient (but still way more efficient than some other options), but it costs less. The LED is more efficient, but the bulb itself costs more. Similarly the LCD screens are cheaper but less energy efficient, while the LED screens cost a bit more but are more energy efficient. Theoretically, over time, the energy efficiency should make up for the difference in price.
Some say that there’s a difference in picture quality. I’ve looked at both types many times and it seems to me that there’s more difference between brands (Sony vs. Panasonic vs. Vizio etc.) than there is between LED and LCD picture.
If you can get them for approximately the same price, the LED is the better option.
I have been a freelance software developer for many years. My income has been variable for a long time, varying from $21,000 a year to $65,000 a year over the last decade. Well, so far this year, I’ve made $130,000.
I live a lifestyle where my expenses total about $30,000 a year. I have no debts. I plan carefully in advance for taxes, so that’s not a problem. I max out a Roth IRA every year, too.
What do you suggest I do with this sur?
If you have no debts and a fully-funded Roth IRA and (I assume) a healthy emergency fund, I’d just take that money and invest it. The question, of course, is how to invest it.
To answer that, you need to figure out what your goals are down the road. Are you looking for a house down payment? Do you want to start a different business? Go back to school? Are you hoping to build toward early retirement?
While there’s no wrong way to invest (as long as you stick with reasonably stable options), you can certainly make a big difference on your taxes and the returns you get and the security of that money depending on what your goals are.
In general, the further off your goal, the riskier you can be with the money. Also, if there’s not a specific number you’re shooting for, you can be a little more risky, too.
I understand why some people would be motivated to retire early because they have interests that don’t earn a return. That doesn’t describe me. I am happiest when I am actually working on projects in my career path. Nothing feels better than delivering a big project that I’ve invested a lot of time in. I love getting lost in the work it makes me feel good.
So why should I even consider early retirement at all? I mean, I understand funding a 401(k) and a Roth IRA under the assumption that I won’t be well enough to work when I’m 70, but why save any extra?
I think you’re viewing “retirement” to mean only one element of what retirement can be. You’re seeing it as the traditional perspective of elderly people golfing and going south for the winter.
Retirement doesn’t have to be anything like that. My own plans for “retirement” look nothing like that. The only difference between “current” me and “retired” me is that the projects I choose to work on will no longer need to have an income-based motive. If I earn income, that’s great, but it will no longer be a requirement.
I’ll be able to write a novel and not worry about whether or not it makes money; I can just worry about whether it pleases me. I’ll be able to write computer code for open source projects and not worry about income. I’ll be able to spend a large chunk of my time volunteering. Why? These are things I want to do, but they’re much more difficult when I need to spend many hours a week working for income.
An early “retirement” for you means that you can keep doing all of that stuff, but there’s no need to worry about the paycheck. You can instead look at other elements – the ethics of who you’re working for, how much you enjoy that work, and so on.
My mother and father were married for 40 years and my father handled all the money and my mother was/is a housewife never working outside the home. My father owned a successful franchise and my older brother worked for him. When my dad passed away 20 years ago he left my mother a large sum of money, me a good sum of money (which I used for my kids college tuition) and to my brother, he left the family business. My mother had never paid bills or handled any sums of money and was very irresponsible with it. Unbeknownst to us, she spent it all (including “borrowing “some from my inheritance) and was going into debt.So she sold her house to pay off the debt and moved in with my brother. She now, like many senior citizens, is on a fixed income.
The business sits on 5 acres of land in an industrial park (that has seen better days) in a large city. The business occupies half of the land and a rental business – a junkyard – occupies the other half. My brother has not been very successful at running the business. He didn’t keep up with any of the items or rules that the franchise required and lost the franchise a few years ago. So now he is trying to do business on his own. He is earning very little income and is in a panic to make money.
And now we come to the problem. The taxes for the property are about $10,000 per year and my mother pays them out of the rental income. The tenant has taken over more than half of the property and it is an incredible mess. Neither my mother or brother have confronted or will confront him about the state of the property and just let him take over.Last year my brother decided he wanted to sell the property thinking that would solve all his money problems. He wants my mother to evict him – and she says she can’t confront him. She doesn’t like confrontation or have the business skills to deal with it. My brother says it is up to my mother. He keeps calling me asking me what we should do. I want to go to the experts, commercial real estate agents, and find out the steps of what we can do to list the land. If we do evict the tenant then we could have lawyers fees, cleanup fees and the taxes (which none of us have the money to pay) and still not sell the land for years and years. I live about 500 miles away and I have offered to meet with the real estate agents but I can’t until the holidays when I can drive there. Since neither of them seem able to deal with it I think that’s a pretty good offer. But my brother is furious with my mother and I saying that we aren’t making it a priority.
I am so tired of hearing about it and my brother calling me about it daily but not doing anything. I was young when this whole deal was setup and I have never even met the tenant nor did I inherit the business and let it get run down. When I tell him this he says “Well, I guess you just don’t want your money or care about me”. But I am trying to help. What would you do?
This shouldn’t be difficult. Just follow the terms of the rental agreement. What does that agreement say? Does it have a termination clause? Does it end on a certain date? When the agreement ends, don’t renew it; if there’s a termination clause, enact it.
If you don’t want to do this yourself, just a lawyer and have him draw up a boilerplate letter for you and also explain what steps you should take if that business owner doesn’t comply.
It’s a headache for all of you and it’s better if this is done sooner rather than later.
What would be your suggestion for a watch that will last for a long time in a variety of conditions (a bit of swimming, etc.)?
Honestly, an inexpensive analog waterproof watch is just what you’re looking for here. You can get these at any department store.
A nice watch isn’t really functionally different than a cheap watch except that it might last a little longer and it makes for a great way to show off that you have money. I’ve worn cheap watches almost all my life without any problems and my last one lasted for more than a decade. (I chose recently to stop wearing watches to make myself be more mindful of the moment.)
I can’t really recommend anything specific, but for me, a watch is not a “buy it for life” item.
Obviously, cooking at home is cheaper than going out or ordering takeout or delivery. No question there. The problem for me is time. It takes twenty or thirty minutes (at least) to get out all the food, make the meal, then put everything away and clean things. On the other hand, I can call and have pizza or Chinese or stuff from other restaurants delivered which takes just a minute or two. Honestly, when I order food, I’m paying for the convenience, not for the food. I’m spending $5 or $8 to have another half an hour of free time.
I think you’re looking at it the right way up to a point. However, you can easily flip this around – you are earning $8 post-tax (that’s about $20 an hour for most people at their jobs earning pre-tax money) for spending half an hour making a meal yourself and that meal contains ingredients that you approve of.
For me, that tradeoff is usually worth it unless something special is happening and I really value that free time. Earning the equivalent of $20 an hour for cooking at home trumps earning nothing by sitting on the couch, but it might not trump half an hour spent with a close friend or working on an important project.
Regardless of what you decide, that ratio of “half an hour of cooking saves me $8” is a useful one to hold onto. You might eventually view that $8 differently than you do now or view that half hour of cooking differently, too.
I just read your last post and wanted to extend a tip about insomnia that one of your readers complained about.
Sleepytime tea has been working wonders for me over the last couple of months. I use Yogi Brand which has valerian root in it and I’m amazed how well I’ve been sleeping.
Someone else recommended Celestial Seasonings and that may work as well.
Hope this helps.
Tea is a great suggestion for some people. While I’ve not actually tried a “nighttime” tea in ages, I have also heard good things about Celestial Seasonings’ Sleepytime tea.
When referring to Yogi Brand Sleepytime, I assume you’re meaning this Yogi Bedtime tea, which – from what I can tell – is really similar to the Sleepytime I mention above except it includes valerian root. Both are chamomile teas which are supposed to encourage sleep.
Regardless, this might be a good inexpensive approach for anyone dealing with insomnia issues. You can certainly get a box of Celestial Seasonings tea for quite cheap at many grocers.
I’ve decided to add more focused reading (meaning more than browsing websites) to my daily routine. I want to feel more informed about the world around me and I’m starting to realize that most articles don’t really go very deep.
I don’t really know how to set up this goal though. What would be a good way to really define this goal?
There are a number of ways to approach this depending on what your goal is.
My suggestion to you would be to spend a few days building a list of books and articles that you want to read, then blocking off a certain amount of time each day to devote to reading. Rather than setting a goal of “I will read 50 books and 100 articles this year,” instead devote a goal of “30 minutes a day spent doing deep reading.”
If you’re going to be reading challenging stuff, I highly recommend taking it slow and taking notes on the key points and ideas that pop into your head using a pen and paper. I’ve tried almost every variant one can try on taking notes and retaining information and nothing beats the old pen an paper.
If there’s one financial lesson my dad pounded into my head over the last few years, it’s that I should contribute to my 401(k) right off the bat as soon as I got a job.
So, I’m 22 and I just got my first “real” job. The problem is that the business is pretty smal (22 people) and they don’t offer a 401(k).
Suggestions? Is a Roth IRA something that makes sense here?
A Roth IRA is actually a very good option here. It’s almost perfect for what you’re describing and serves much the same role as a 401(k) in that it builds retirement savings.
Given that you’re so young, my recommendation is that you open a Roth IRA with a financial institution you trust – I use Vanguard – and contribute 10% of your take-home to that account. That will put you on an excellent retirement track.
What should you invest in? I’d just choose the Target Retirement fund that’s closest to the year when you’ll turn 65 – that would probably be Target Retirement 2055.
I am asking about college costs and how do you help your kids? Do you know how expensive college is?
By December I will have paid $20000 for my son at a great community college for the last year, including living costs . Yes I am paying his costs for him living in a private studio apartment and other expenses, total $1200 a month. He does not live high but I am also paying for a used car because I gave him my sweet 2000 Camry. (I miss my Camry).
He did his two years working retail and learning there is no way he can survive without getting a degree.
Geez, I am 66, I do have a good income of $66000 a year but I have taken out a home equity loan to pay for his college.
You are correct – college is ludicrously expensive today. It is getting more and more difficult for parents to even pay a significant chunk of the tuition, room, and board bill, let alone all of it.
That doesn’t mean that it’s not worth trying at all. If you can save, do so.
Having said that, however, the best gift you can give your adult children is to make sure that you don’t become a financial burden on them. That means making retirement savings a priority.
When you retire, are you supposed to spend down your retirement savings or are you trying to live off of the interest/dividends/income?
If you’re planning ahead for retirement, you should make it your goal to draw as little out as you possibly can each year. In other words, the more you have, the better.
Most retirement planners suggest that you should try to target a draw down of 4% of your balance each year. So, for example, if you have $100,000 in retirement savings, they suggest drawing out 4% each year. Doing that should allow the money to more or less maintain its value over time, especially if you’re invested in a wide variety of stuff and aren’t too conservative with it. Your income will fluctuate from year to year, but it should go up over time.
I would target somewhere between those two goals – drawing out less than 4% per year, but not expecting to be able to live off of the dividends. Figure out how much you’ll need per year (don’t forget your Social Security and other retirement income), then multiply that by 25 to see how much you’d need to meet that 4% threshold. I would use that as a bare minimum, but try to shoot for more.
So, let’s say you need $25,000 a year and your Social Security will provide $10,000 a year. That means you’ll need $15,000 a year. Multiply that by 25 and you’ll see you need $425,000 at a bare minimum.
Lately I’ve seen a bunch of “sign up bonuses” for credit cards – things like $100 gift cards and stuff just for signing up. Is it worth the credit hit to sign up for these cards, get the bonus, leave them open for a little while, then close them?
The strategy you’re describing is called “churning,” and while it has some benefits, there are some drawbacks, too.
Obviously, the benefit is that you’re getting all of the sign-up bonuses, and one of the drawbacks is a ding on your credit. There’s also the risk of identity theft – if someone manages to get one of those numbers and puts some charges on there, you’ll have to deal with it.
If your credit is already really good and you don’t have any need for it in the future – you won’t be taking out loans, moving into an apartment, switching jobs, or doing any insurance shopping – it can be an okay strategy. I did it for a little while several years ago and I never felt like I got enough value for the effort, but your mileage in that regard my vary.
My wife and I have an extraordinary amount of credit, across a number of accounts. I estimate these as follows:
Credit Line 1 – $21,500
Credit Line 2 – $30,000
Credit Line 3 – $14,000
Credit Line 4 – $12,000
Credit Line 5 – $10,000
Credit Line 6 – $10,000
Credit Card 1 – $25,000
Credit Card 2 – $14,000
Credit Card 3 – $12,000
Credit Card 4 – $5,000
Credit Card 5 – $5,000
Credit Card 6 – $5,000
Credit Card 7 – $5,000
Credit Card 8 – $5,000
Credit Card 9 – $5,000
We also have two mortgages.
Lastly there is an outstanding business loan for say $450, 000.
The business loan is key. It is up for renewal annually, renewed I presume based on the business performance and maybe our credit scores. I don’t want to jeopardize that loan being renewed but I do want to start closing some of these credit accounts with the smaller limits. They aren’t really used. The only account a monthly balance is carried on (apart from mortgages and business loan) is the largest credit line and its balance is at maybe 40% of its limit.
If this approximately described your credit picture the last time that loan was renewed, I’d probably sit on things until it’s renewed the next time before making changes. There’s no need to rock the boat.
That being said, this is a lot of credit. Unless your income is enormous, it’s probably enough that it’s a drawback for you in terms of your credit score.
I’d certainly close up many of the smaller ones and focus on retaining just the ones you use or have a strong likelihood of using again.
When I was 21 and a senior in college, I got into a ton of trouble with credit cards. I ended up defaulting on a couple of them and I moved around several times so they stopped following me. They are still on my credit report and my credit score is bad but improving.
I am now 25 and I have been seriously dating a girl for a year now. We are serious enough that engagement has been talked about. When should I tell her about this? Should I even tell her at all? It will almost be off my credit history (seven years) by the time we would be married.
Honestly, I wouldn’t tell her yet unless shared finances become a topic. If you’re seriously discussing engagement or get engaged, you should sit down and have some conversations about your financial histories and your future plans and that would be the time to reveal something like this.
This old issue isn’t something that’s negatively affecting your day-to-day life today and it’s something that will basically be a non-issue in a year or two.
This is basically my philosophy on most “skeletons in the closet.” They don’t need to come out unless they have the potential to affect the other person’s life. This has some chance of that, but not until you join finances together.
I have a kindergartener who can read most of his picture books. I am looking for some good “first chapter books” for him, especially ones that I am likely to find at the used book store. What did your kids read at that age?
When my two oldest children were in kindergarten, they were also migrating from picture books to simple chapter books. In both of their cases – a boy and a girl – they really got into the Magic Treehouse series by Mary Pope Osborne. They colloquially referred to them as “Jack and Annie books,” as Jack and Annie were the primary characters.
At first, I read them as bedtime stories for them, but as their reading abilities grew, I encouraged them to try to pick up the books themselves and read them. I’d usually encourage them to re-read one we had read recently so their memory of the story could help, but it wasn’t long before they were taking on new ones.
We have about 25 of the books in their bedroom on a shelf. While they’ve both somewhat outgrown the books (they’re both reading more challenging material now), I know that my seven year old daughter sometimes grabs one for some light reading and we’re all looking forward to our youngest child getting into the series.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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.