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. Retirement and asset allocation
2. Breaking the bar routine
3. Regular or Roth TSP?
4. Game night and small kids
5. Financial seminar scam
6. Income question
7. Buying slow cooker for life
8. Is college useful?
9. Wet cell phone
10. Potential leasing situation
What do you associate with the word frugal? How about the word cheap?
What about wealthy? Compare that to rich.
Words that mean more or less the same thing often have different connotations to different people. It’s sometimes difficult to remember that.
For example, I see “wealthy” as having positive connotations, but “rich” has negative ones. I see “frugal” as being extremely positive, but “cheap” as mildly negative.
Q1: Retirement and asset allocation
I’m currently have a 401K through my work and I contribute the max to receive my employer match. I decided to invest my funds into Vanguard Target Retirement Fund 2050. I’m currently interested in opening a Roth IRA through Vanguard as well. Since my asset allocation with my 401K is 90% stocks, would it be wise to use Vanguard Target Retirement Fund 2025 which has 30% bonds to minimize my risk allocation? If not, what other mutual funds would you suggest to properly diversify my portfolio?
It depends on how your assets are allocated in your 401(k). Are they also in a Target Retirement Fund?
If they are, then I wouldn’t worry about this and just put everything into Target Retirement Funds.
If they’re not and such funds aren’t available, I’d actually match your 401(k) allocations to match the appropriate Vanguard Total Retirement Fund and then rebalance things every year or two.
Q2: Breaking the bar routine
Pretty much every night after work someone texts me to go to the bar with them, which usually means $20 in drinks and food. I would love to break this habit but I am afraid of breaking the social connections. Do you have any thoughts?
The first thing you need to figure out is whether you actually enjoy going to the bar or not. Is this something you get personal fulfillment and enjoyment from? Or is it something you do mostly for the social connection?
If it’s personally enjoyable, my suggestion would be to just cut back on bar purchases. Stop at home first and eat something before you hit the bar so you’re not as tempted. Make it your goal to nurse your drinks when you’re there and perhaps cut one drink out of your purchases. If you cut out the food and drop from, say, three drinks to two per visit, you’re probably cutting the expense by 70%.
If you’re more interested in the social connection, look for ways to socially connect with other people in your workplace. What do the non-barhoppers do after work? Talk to some of the people your age who don’t engage in that scene and find out what they’re into. Try it out and invite them to go along, particularly if it’s free. I worked with a person who hosted a regular board game night at his house, another one who participated in a woodworking club, another one who had a role playing game that he hosted, and another one who had a big potluck circle. Just find out and dig into some other activities, then use those activities to build new social connections outside of the expensive bar scene.
All else being equal, I tend to recommend Roths to people rather than regular investments, for TSP, IRAs, and 401(k)s.
Why? I tend to believe that tax rates will go up in the future as a larger percentage of Americans are in retirement and a smaller percentage are actively paying taxes.
In a future where your effective tax rate is higher, a Roth is a better deal.
Q4: Game night and small kids
We have a 3 year old and an infant, and we have several other friends with kids around the same age. we would like to do game nights with the adults, but are having trouble coordinating because the kids and babies are all so young that we can’t just release them to play together in another room while the adults play. how have you managed this? hiring a babysitter seems too complicated and expensive. do we arrange a sleepover for the kids (and does that work with such young ones)? or do we try to do it in the afternoon before bedtime (though i’m afraid that nap times will conflict)?
If you have several couples with kids, have one person watch the kids for one evening while the rest have a game night. Then rotate that one person. If you have several couples, you could just have one couple on child care duty instead.
Depending on the age of the kids and the desire of the parents, this could either be done at the game night place or it could be done at one of the other houses.
Yes, it would completely frazzle the one babysitter that one night, but it gives all of the other parents a peaceful evening of gaming.
You could simply have a random drawing to establish the order of “babysitters” to start.
Q5: Financial seminar scam
Here’s a big tip for your readers: if someone is offering an investment or financial seminar in your town for free, don’t go. Don’t. I’ve been to two different ones. You don’t learn anything you didn’t already know except for how unbelievably great their paid package is. A friend of mine actually went to one of their paid sessions and it basically combined some Investing 101 with pitches for more expensive classes. Don’t waste your time. Go to a library.
My experience with seminars is much the same. I’ve never received much value from any of them.
A few of the programs do make sense if you’re in need of some stiff coaching in terms of getting you into a good personal finance mindset, but even that’s fairly rare.
If you’re curious about investing, hit the library and check out some books. I suggest starting with The Bogleheads’ Guide to Investing or The Four Pillars of Investing. Both of those books – which you can check out for free at the library – will be more informative and useful than any investment seminar I’ve ever seen.
This depends a lot on two key factors – how many dependents you have and where you live. A single person in a rural area has a much lower ceiling for “wealth” than a married person with five kids in San Francisco, for example. They’re completely different worlds.
My feeling is that anyone earning a nationwide average of $40,000 a year can become wealthy, assuming they’re single. According to this table, the city closest to “average” is Akron, Ohio. So, if you want to see what that $40,000 means, go to this cost-of-living calculator, set the income to $40,000, set the current city to Akron, OH, and then set the “want to live” city to your current one. The dollar amount that the calculator spits out is how much I would expect a single person to need to make in that city to easily become wealthy. Anything above that makes it easier; anything below that doesn’t make it impossible, but makes it harder.
Dependents and other life issues change the situation drastically. I would add $10,000 per additional dependent to that income to account for any and all dependents. So, if you have a family of five, set the base salary to $80,000 per year – $40,000 $10,000 each for the four dependents (that’s the total family salary, of course).
Q7: Buying slow cooker for life
I am writing to you about crock pots. We don’t use them here, and I’m planning to buy one through Amazon. I read your post “Buying it for life” in the kitchen , and followed the link to Amazon, but I’m a bit confused about the ideal size of it to my specific situation. I live alone and usually my boyfriend or some friends come here to eat, so I would need a crock pot for for 2, max 4 people. Also, I don’t know if a 4 people crock pot can be used to cook food for only one or two. Would you please help me with these doubts? Which would be the ideal model and size according with a “buying for life” approach?
My general “buy it for life” recommendation for a slow cooker is to go to a thrift store and buy one with a non-digital dial setting, as those things are such simple devices that it’s really hard for them to go haywire.
Given your constraints – you have to buy a new one, you’re mostly cooking for two people with a max of four – I’d get a three quart one with a manual dial, like this one.
It’s about the right size for the people you’d be feeding, the manual dial ones tend to have a much longer life span than the digital ones.
Q8: Is college useful?
Of the eight people I currently work with, none of us are working in areas that make use of our college degree. All of us retrained into our current field once we were out of school. This makes us wonder why we bothered in the first place especially since most of us are paying off loans.
College isn’t guaranteed to be useful for everyone.
However, beyond just the degree you earn, you often learn a giant pile of transferable skills – time management, information management, public speaking, and so on. You also often build a network of people that you can continue to tap throughout your life. Beyond that, it’s a unique life experience.
I’m not working in an area where I use my degree, but I am still glad I did it. I met a ton of great people along the way that I still talk to regularly – and some quite a bit more than regularly.
Q9: Wet cell phone
How do you actually fix a wet cell phone? I tried sticking it in a container of rice but all that seemed to happen is that some of the rice around it got sticky from being wet and it stuck to the phone. Suggestions before I go buy a new one?
Rice works sometimes and people often have it on hand, but there are better ways to cure a wet phone. The best thing you can use is silica crystals, which you can usually find in the kitty litter aisle. The entire purpose of silica crystals is to wick away moisture. Just remove the battery and cover the phone in silica crystals in a tight container and leave it for two days.
If your phone got something sticky on it, you have a much worse problem. Your best bet is to submerge the phone entirely in rubbing alcohol (with the battery removed first, of course) for about five seconds, then give that phone the shaking of its life. One good way is to wrap the phone in lots of paper towels, jam the phone and towels in a baggie, then toss it around in the air a lot. Keep shaking it until no liquid comes out when you shake it, then follow that up with the silica trick.
These tricks were shown to me by an old technical support specialist, who has resurrected a number of phones using those tricks. They’re not a guarantee, of course, as your phone might already be fried, but it’s worth a shot.
Q10: Potential leasing situation
I own a 2008 Nissan Sentra outright (~64K miles); the mechanic recently ran a diagnostic and says it needs work on it that will cost about 2K, which is over 20% of the car’s value.
Meanwhile, I have 2 years of med school left before I travel west for residency; I have no desire to drive across the country (and in fact I may end up on an island) so no car will be coming with me either way.
So I’m thinking about selling this car while it’s still in relatively good shape. The question is, does it make sense to lease for 48 months? I would aim for as cheap a monthly payment as possible provided that the car has great gas mileage – no need for luxury here.
The only other option I can think of is buying a car with the intention of only keeping it 2 years, but at that point the issue becomes trying to find the balance of low price without it falling apart/requiring regular infusions of money to keep it going.
Any thoughts on either approach?
If you are absolutely sure that you will not be retaining a car in two years no matter what happens, then a lease can make sense. That’s a rather rare situation, though, but it’s the type of situation a lease is actually appropriate for.
I’m not sure about a 48 month lease, though. The early termination fees are going to hit you like a freight train if you end it early. If you can find someone to transfer the lease to, then you might be okay, but that’s a gamble.
In your situation, with only a two year timeframe and a relatively new car sitting there, I’d repair the car, keep using it for two years, then sell it on Craigslist in the last month or so before you leave.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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.