Reader Mailbag #5

Each Monday, Money360 opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently.
Which credit cards are worth keeping and the only two cards I use
Preparing for a job loss
Dealing with a financially crazy family

And now, let’s dig into some good questions.

Why do we devote so much time working, or saving money or spending money? What is the point? What is there to show for everything?

The way I see it we can either be hedonistic and spend our time trying to get the most for ourselves during our short life, or sacrifice our lives in order to help other people be hedonistic.

Any comments?
– dman

I think the key to really digging into this question is to realize that money represents time. We earn money by spending some portion of our time doing something that we don’t want to do. In exchange for that time, we get some amount of money. Incidentally, this means that the best job in the world is the one where you spend the least amount of time doing stuff you don’t want to do. If you enjoy your job, the pay doesn’t really matter – it’s a great job because you’re actually getting paid a lot for the very little time spent doing something you don’t enjoy.

Time itself has different levels of quality. For instance, I find the time spent reading my son a book or teaching my daughter how to feed herself mashed potatoes with a spoon or reading a thought-provoking work of literature to be incredibly valuable time, whereas time spent reading legal documents has a low level of quality.

My opinion is that everyone on earth is striving to have the maximum amount of high quality time and that’s the meaning of life. For most people, this seems to center around relationships with other people or with intense personal growth, but that’s mostly just an observation.

The problem is that we all have different definitions of what quality time is – maybe you don’t see reading as quality time, for instance. When we share our ideas, we often confuse our own definitions of quality time, at least a little. Then we have individuals out there who are attempting to confuse us even more by giving us different suggestions of what quality time is – in other words, marketers.

The end result is that many people don’t have a good grasp on what their own personal definition of quality time is, and then they end up spending their money to generate lower quality time. The more “noise” that fills their life, the lower the overall quality of the time is that their dollar buys.

If that philosophy is true, the best way to live your life is as follows: do a job you genuinely love regardless of pay and spend your free time focused on things that genuinely leave you fulfilled. The best way to do that is to spend time figuring out what really fulfills you and drives your passions, learning how to live as frugally as possible in every other aspect of your life, and then following that passion with your whole heart.

Ketchup, glass bottle or plastic?
– Rob

Glass bottle, but with a caveat. I hate store-bought ketchup. Seriously – it tastes foul to me, kind of like tomato paste mixed with a ton of corn syrup, a few random spices, and a little bit of vinegar (which, lo and behold, is exactly what it is). I vastly prefer homemade ketchup.

Homemade ketchup, you say? This is something I’m going to talk about in detail on my cooking blog, but here’s a very simple preview. Basically, you take a whole lot of tomatoes, boil them down (way down), add several ingredients including cidar vinegar, onions, brown sugar (oh, yes, so much better than that corn syrup), garlic, fresh ground black pepper, a bit of sea salt, and just a tiny tiny bit of mustard. Boil all of this down until it’s thick – I mean really thick. I like it thick enough that I have to spread it with a knife onto bread. Then can it in jars in boiling water.

This is so many light years better than store-purchased ketchup that I can’t even stand the regular stuff.

Often financial books recommend investing in VFINX, The Vanguard 500 Index….but at $123.23, it seems very pricy as compared with, say, Vanguard’s Star Fund @ $19.95. The Vanguard Star Fund (VGSTX)is a Fund of Funds. Is it better to buy a cheaper, newer fund that is diversified than a more established fund to allow room for greater growth of the fund? It seems to me that the FINX fund is really expensive and offers less value than, say, the Star Fund. Both are diversified, the Star Fund seems even more so….

How does all that work when you are choosing between two good fund, where does the cost of each factor in? Obviously, I would have many more shares of the Star (VGSTX) over the VINX as well….

I haven’t read a book or blog that addresses this specifically and I am just not at that experience level yet on my own.
– Lynn

The individual price of a share in this case makes little difference. What’s actually important is the yield – the annual rate of return of that investment over a long period of time.

Here’s what I mean. Let’s say you have $3,000 to invest. When you wrote this, you could either buy 24.3 shares of VFINX or 300 shares of Hypothetical Fund X, which also tracks the S&P 500. On the surface, it might seem like the latter is a better deal, but the number of shares is really inconsequential. Right now, VFINX has a value of 126.06 per share, which means it has gone up 2.3% since you wrote in. Over that same period, HFX has gone up to 10.23, also a raise of 2.3%.

This means that your 24.3 shares of VFINX, now at 126.06 a share, have a combined value of $3,069. On the other hand, the 300 shares of HFX are now at 10.23 each, giving you a combined value of… $3,069. Regardless of the number of shares, the value in the end is the same.

It doesn’t matter how many shares you have, what matters is the annual rate of return of the investment and the confidence you have in that annual rate of return. That’s the real judgment call to make between VFINX and VGSTX, not how many shares your cash can get you.

I am a college student, and I am an avvid planner. I need to plan my plans. I am always giving myself a headache though, because I don’t know what I want to do with my life. Do you have any advice on finding your calling? I think I read you had changed your major – was there anything that helped you realize what you wanted to do?
– Mol

When I was in college, I had no idea what I wanted to do with my life. I bounced between three majors (and applied for a fourth one, but cancelled the move when I thought about it some more). I wound up with two full bachelors’ degrees in two rather separate fields and a near-minor in a third (I was one class short, I believe).

When I got out of college, I ended up working in a weird field that didn’t really match either of my majors – there was a bit of overlap with both, but the job was truthfully in a grey area in the middle. I usually felt nervous and inadequate and even though I loved the people I worked with and many creative aspects of the work, I eventually came to realize that it wasn’t my passion – or at least not the right place for it, anyway.

My real passion was something I knew all along but I kept ignoring: writing. I ignored it because everyone told me, “you can’t make money writing.” Well, that may be true, but no amount of money can compare to the feeling of getting out of bed each morning and racing to get started because you’re fully passionate about what you do. Work becomes play.

My sister-in-law is in much the same boat. She ended up following her heart to her own financial detriment – in fact, her bravery in her choice was rather inspiring to me.

My suggestion to you is to not declare a major and just take some general electives for the moment and spend some time figuring out what your real passion is. Ignore the blather of what others are telling you about the job you need to have to make money and the career you need to avoid to avoid bankruptcy. I strongly suggest reading through my guide to finding your passion and taking it seriously – then carrying forward what you find into ways to make income from that passion, if you need to.

My oldest of 4 is in the 9th grade. Each child was given money by their grandparents when they passed away; not a fortune, but it will certainly help as we are in no position to pay the high cost of college. I am told this money shouldn’t be in their names when they are applying for college financial aid, but I am unsure what to do with it. Suggestions?
– Betsy

I am a firm believer in charity, especially within my own family. If you have a small amount of money that’s just sitting in a savings account and you’re concerned about it affecting financial aid, use it for family charity. Give it to someone in your family that could really use it right now – all it’s doing for you at the moment is sitting in a savings account collecting a tiny amount of interest and probably hurting your financial aid case. When the time comes, the family goodwill you’ve built up will pay more dividends than your kids can imagine, because charity begats charity. Remember, though, if any money is given to your children during the college funding process, it still needs to be reported on the FAFSA. A “tit for tat” arrangement, which is what some readers thought I was implying before, is not only unethical, but illegal, and can land you in prison – don’t even consider it.

Note: this is an edited answer to the question. My original answer had much the same intent, but suggested a specific example in which one gave money to a specific family member, then that member gave money back during the college years. Many readers (see comments) pointed out that this may imply a contract to “hide” money, which wasn’t my original intention, hence the edits. All comments (including my own original one) are archived in the comments – this was the fairest way I could think of to preserve discussion but also preserve the article.

Which really was the better video game system? The NES or the Sega Master System?
– Bill K.

NES, no question, because it wins in the one area that counts: number of quality games. Side-by-side, the games for the SMS looked better and often played better (just compare the NES Ninja Gaiden to the SMS Ninja Gaiden), but there were far more truly great games for the ol’ NES.

The real battle for my generation was the Sega Genesis versus the SNES versus (yes) the Turbografx 16. I thought the Genesis was atrocious, with only a handful of decent games ever made for it, but that was considered blasphemy among many. On the other hand, there was only one kid I knew who had a Turbografx 16 – and we were all jealous of him. He would bring it with him to parties and we’d play Bonk’s Adventure until the sun came up.

You know, all of that is a pretty good reminder of how intense consumerism was when I was a kid. We were judged based on the game consoles we had and supported.

I’ve heard that you can pay a collection agency the amount of the original transaction (minus fees etc) and they have to take it and remove you from “the system”. Now, they may try and harass you a little bit to recoup some of the fees but you don’t actually have to pay them. Any truth to this?
– navifoto

It’s not quite that simple. There are really two kinds of collection agencies: the ones that work on behalf of a big company to get you to repay a debt (in exchange for some fraction of the debt) and agencies that buy bad debts for a fraction of their value and try to get you to pay up.

The first group, often called “first party agencies,” basically don’t have any wiggle room for negotiation. They’re basically being paid to harass and cajole you into paying the debt back to the group you actually owe money to, and they only get paid if you pay the debt back (usually in full).

The other group, often called “third party agencies,” now own the debt and have usually not paid very much for it. You can usually negotiate with these guys, as they’ll still make a profit even if you only pay part of what you owe.

What do you have to pay? It depends on how damaged you want your credit report to be and how close to usury you want your future loans to be, and it also has to do with your personal honesty – whenever you skip out on a debt, you’ve lied to someone and also stolen from them.

My husband and I are expecting our first child in June. How can we save money on all the things a new baby needs? And what baby things does the industry and other people make us believe we ‘need’ that we can reasonably go without in order to save money? This will likely be our only child. Also, what is the best brand of diapers for the best price?
– Allie

Most of the stuff foisted on new parents is a waste. I speak from experience – I have a two year old and a seven month old here at home. Here’s what you actually need.

Diapers This is the one area that can be expensive. Don’t get cheap diapers – they’ll end up costing you over the long haul. For disposables, we use and love Pampers Swaddlers and, later on, Cruisers – they never seem to leak or break. However, I really, really encourage you to give bumGenius cloth diapers a try, as I mentioned in my post over the weekend. They work as well as disposables and don’t have many of the cloth diaper headaches, they fit just about any size of baby. We calculate that you need to reuse a bumGenius about 70 times to bring it down to the cost of one of those Pampers. In other words, they’re a great thing to ask for for baby showers.

Wipes These are useful for preventing diaper rash, but you can use wet cloth – or make your own wipes (they’re way cheaper than buying wipes and do the same trick). Flannel cloth wipes work really well and make for a good baby shower gift if you don’t mind the laundry.

Clothes Your child’s due in June? Go to yard sales and buy bulk kid’s clothes. Seriously, most of the baby and toddler clothes at yard sales were worn only a few times. Similarly, ask around in your family for any hand-me-downs. You don’t need to go buy a new wardrobe.

Bed Your baby needs a place to sleep, but frankly they’ll only use a crib for a year or two before upgrading to a bed. If you’re going to buy new (or an overzealous grandmother wants to buy one), get one that converts into a bed later on. Otherwise, look for a used one at a yard sale and just swap in a fresh mattress.

Food For the first six months, your child will eat either milk or formula, period. Is your wife planning on breastfeeding? If no, then you’ll need some bottles, but don’t worry about a bottle warmer – you can make the formula with warm water and you’re fine. If she is planning on breastfeeding, is she going to be able to do it exclusively, or is she going to have to pump? If she’s going to have to pump, rent one from the hospital if you’re only going to have one child – try to get a Medela Pump in Style, as my wife loves hers (we figured out that buying one was cheaper since we planned on having at least three kids).

Most other stuff, you frankly don’t need it. Receiving blankets? Just use an old t-shirt – they’re perfect for this because they’re soft and can get stained without any concern. Wipe warmers? Wipe your child three times with a room temperature wipe and they’ll be fine. Changing table? Ha! Anything can be a changing table as long as you have an old cloth under the child to catch any accidents. You’ll get a functional diaper bag at the hospital, likely – we use that one for our road trips instead of the expensive cloth one we bought. Children at this age don’t really need toys – the handful they get from happy visitors will be enough. Books at an extremely early age aren’t useful, either, though you should read to the child to teach language skills – I read to my seven month old from The New Yorker (no joke) because we subscribe to it anyway.

In a nutshell, here’s the stuff I’d ask for at a baby shower if we were starting all over again: a lot of bumGenius diapers (each one is like a mountain of disposables), flannel cloths to use as wipes, bottles, and sheets for a crib mattress. I’d also get either a used crib or, if someone was buying one as a gift, a crib that converts into a bed as a baby grows up. I’d collect old tee shirts to use as receiving blankets and burp rags, hit the yard sales for clothes, and take care of any breast pump needs (probably just renting one).

How often do readers flag ads as “unethical?” How often do you agree with them? Are some readers overzealous?
– Andy D.

I receive about two notifications a week about an ad someone thinks is unethical. Most of the time, I block the ads, but not always – I’m mostly concerned about ads that display non-family friendly material or offer bad financial products. When a reader complains about something that doesn’t really fit into either of those two groups, I usually don’t block it. Those complaints usually are the result of an individual with an axe to grind against a particular company or industry for whatever reason.

That’s one of the interesting parts of having a “popular” blog – people come out of the woodwork with all sorts of perspectives and ideas, and they’re not afraid to share them loudly – some of them go off the deep end and become rather frightening. I have a couple people who write me all the time and accuse me of spiritual corruption because I write about money. I had a woman who apparently lives somewhere near me (in rural northern Iowa) send me nude photographs of herself and ask me if I “swing.” For a while, I had a bunch of people who were sending me crazy emails who thought that Money360 was part of some online “alternate reality game.” I’ve had at least two death threats and one disturbingly Photoshopped image of myself mailed to me. There’s also an army of trolls that love to comment for the sole purpose of riling up other people.

One of my challenges is filtering all of this stuff. What’s legitimate? What’s people grinding their own personal axe? What’s from authentically crazy people? What’s worth pursuing, and what should just be blown off? One problem is that if you guess wrong on one instance, that person will usually wind up here commenting and “proving” that I’m a fraud or they’ll try to escalate it personally.

Why would you pay for your children to do extended international travel, but not pay for private school?

For starters, part of the reason is that I live in Iowa, which has stellar public education, and beyond that, I live in one of the best school districts in the state. Furthermore, I would rather my child associate with people of a variety of economic backgrounds than solely with children who can afford private schools.

Even beyond that, I do not want my child’s intellectual growth to be limited by financial means, and if they went to private schools, they would be. A private school might still be somewhat better than the public school in my district, but when comparing that edge in benefits versus the other benefits I could provide – like educationally-oriented trips, home art supplies or music equipment, or the equipment needed to build a giant Tesla coil in the backyard – in an effort to make the home life fulfilling, there’s really no choice for me.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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