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. More retirement savings
2. Value of shorter commute?
3. Dishwasher versus hand washing
4. Twenty-something decisions
5. Buying razors for life
6. Value of shorter commute?
7. Lemon houses
8. Making hot sauce
9. Old stock certificates
10. Combining finances
During the summer, Sarah and I like to plan “field trips” for our children – day trips where we can go and learn about something new. Since we live right in the heart of Iowa, our options for day trips are largely restricted to the state, because leaving Iowa means a minimum of two hours driving one way.
So, what do we do? We ask about touring small factories and community buildings. We look for nature walks, particularly those with leaders. We try to find out interesting landmarks in various towns.
We pack a picnic lunch the night before, leave early in the morning, stop for some general exploration and an early lunch, then we try to fit in some kind of educational tour. We then turn around and go home.
Since most of these excursions are free, the only real expense is the gas. Plus, it lets our children (and us) explore the world in a new way.
Q1: More retirement savings
We are lucky enough to be over the limit for IRA contributions. We both contribute 10% of our income to our employer’s IRAs (although they only match 3-6%).
What’s the next best place to start saving for retirement?
If you’re hitting your IRA contribution limit for the year and you don’t have access to a 401(k) through your employer, your additional savings options are limited, as discussed in this Kiplinger article.
Your best bet is probably to open up an ordinary taxable investment account at a brokerage and invest in stable things that won’t trigger much of a tax bill for you until you sell it.
My recommendation would probably be to open an account with Vanguard and invest in their Total Stock Market Index. The only taxes you’ll face would be taxes on the dividends, which would be pretty small for a long time.
Q2: Safety of cash at home
Whenever I have extra cash or coins in my wallet, I throw all of it into a jar on my dresser and take it to the bank. Each time I do this, I end up with $200-300, which is nice. My only worry is that this isn’t very safe. A thief could just pick up the jar and walk out with $200. Do you have any other suggestions?
At any point when you feel nervous about the contents of the jar, take the jar to the bank and cash it in. You don’t have to wait until it’s full.
At first, after you empty it, it’s just going to have a few coins and a few dollar bills in it – no big deal, right? At some point between that level and having hundreds of dollars in it, you transition from not worrying about it to worrying about it.
When you cross that line, just cash it all in.
Q3: Dishwasher versus hand washing
We bought my mother a dishwasher for Christmas and had it installed. The other day, I was visiting her and she was washing dishes by hand. She said that washing them by hand was cheaper than running the dishwasher, which made me mad. I’m pretty sure that dishwashers are cheaper than washing by hand.
You’re right, actually. Running a load in the dishwasher is more energy efficient than washing the same number of dishes by hand. You burn far less hot water in that process.
The article does describe techniques that you could use for hand washing to balance out the two, but it requires using mostly cold water and using a very small amount of water per item that you wash. I tried it and I couldn’t even get a fork clean using those standards, let alone a plate.
I’ll let the dishwasher do its job. It’s far more efficient than I am.
Q4: Twenty-something decisions
I am 23 and in college with no debt whatsoever, a perfect credit score, an emergency savings account, and a retirement account that I contribute to monthly, even though my income is minuscule. Less than two years ago, I was swimming in nearly $10,000 worth of debt, almost all on credit cards, but I had a goal to be debt free by 2014 and I made a plan to make it happen, and I managed to pay off the last of my debts six months early. SO, yes, at the age of 18, I managed to dig myself into a rather large hole, but by the age of 23, I had dug right back out of it.
My best friend is 32 and is looking to go back to college this fall. She defaulted on a student loan nearly ten years ago which has ruined her credit through until today. She has never had a credit card (good) but she can also never take out a car loan, and finding an apartment to rent that doesn’t run credit checks is a challenging task for her. She has no emergency savings to speak of and likes to spend her money freely and with little or no regard for the future. She definitely isn’t thinking about retirement. Nearly ten years older than I am and with significantly less of a dent made in her financial future.
Recently, she asked for my help in getting her finances in order and I’ve just now started to get her on the path to financial independence, but it’s going to take her a long time because not only does she have to get herself out of her own financial hole, but she has to un-learn all the habits that got her there in the first place.
In closing, yes, the things you value in your 20’s are different from the things you value in your 30’s, and perhaps for some people it is simpler to manage their money as they age. But for the rest of us, age has little to do with anything. You have to plan as early as you can for the future you want, or you’ll end up playing catch up with all the people who did.
I think people value different things throughout their lives. My parents certainly seem to care about different things than they did, say, 20 years ago. I care about different things than I did ten years ago.
People simply change throughout their lives. They have different wants and desires and are willing to take different actions to fulfill those desires.
My hope is that I can guide my kids in such a way that they avoid many of the common traps that people fall into in their twenties.
Q5: Buying razors for life
What do you think about using a safety razor with a single blade rather than the cartridges and plastic razors? A safety razor is expensive, but then shaving afterwards is really cheap.
It’s a good idea. Buying a good safety razor lowers the cost-per-use of future shaves drastically.
The only problem is that the experience of shaving with a safety razor is very different than using a cartridge razor. It is very easy to cut yourself with a safety razor and it’s hard to get a really close shave. There’s also more skin irritation, especially at first.
If you’re switching, there’s going to be a transition period where you nick yourself quite a bit and your skin feels somewhat raw. If you can get through that period, a safety razor is a less expensive way to shave.
Q6: Value of shorter commute?
I found an apartment that’s fifteen minutes closer to my job and has the exact same square footage (actually 4 sq. ft. more) and the same layout as my current apartment. The rent is $300 a month more. I’m trying to figure out if this is worth it.
It depends on a lot of factors, but I’d lean toward yes.
The biggest factor is how you commute to work. If you drive yourself to work every day, then this means you’re shaving roughly 30 minutes of driving off of each day. If we figure that you’re going 40 miles per hour on average, that’s 20 miles per day off of your car. Again, I’m just guesstimating here. I think it’s reasonable to say you’d save a gallon of gas each day because of this, which adds up to $60-80 per month just in gas savings.
There’s also the fact that you’d have less frequent oil changes and other maintenance on your car. You would literally shave 400 miles per month off of your odometer, which shows up in less frequent maintenance and replacement.
Still, the cost of the new apartment outstrips the savings… but then you get down to the value of an extra half an hour per day. What is that worth to you? Let’s say you eventually concluded that the new apartment was costing you $100 per month more than your current one. You’d be saving 20 hours of commute time, which means you’re basically paying $5 per hour for 20 more hours of free time. Is that worth it to you? It would be to me.
Q7: Lemon houses
Hi! I have heard people (like you and Dave Ramsey, I think) say that one of the advantages of buying a car that is a few years old (in addition to the obvious saving money and avoiding significant depreciation) is that you’ll avoid the “lemons”. That is, any inherent flaws in the car will have revealed themselves already.
I wonder, does the same apply to houses? We are looking to move in the next year or two and I have a hard time deciding whether to look at newer or older homes. I love the character of older homes, but not the constant updating of old systems. With two young kids, we’re not interested in projects. I like the idea of a low-maintenance new home with a modern floor plan and amenities, but worry about the quality of new construction and what if I get a “lemon”? Should I go somewhere in the middle? Maybe a 5-10 year old home?
Regardless of the house you buy, you should hire a home inspector as one of the final steps before you agree to buy the home. Usually, you’ll sign an agreement pending the results of a home inspection.
The home inspector – if he’s a reputable one – will find most of the flaws in a home that would indicate a lemon. We had our home inspected and he correctly pointed out a bunch of flaws, some of which were fixed by the previous owner. The other flaws were livable, but definitely showed up over time as we lived here.
Rather than worrying about this, focus on getting a top quality home inspector when you buy. If a home inspector finds a bunch of problems, you should be able to back out of the sale.
Q8: Making hot sauce
Here’s a tip: if you have a garden, grow a few pepper plants along the edges. When you harvest the peppers, turn them into hot sauce. All you need is to brown them a little bit, blend them up in a blender, add a cup or two vinegar and garlic to taste, and you’ve got a delicious cheap hot sauce. I have a big sriracha battle that I refill in this way.
Homemade hot sauce tastes really good and, if you use plenty of vinegar and keep it closed, it’ll last in the refrigerator for a long time. Arnold has the backbone of a good recipe here.
I also like to add a pinch of salt and, if I have them, a couple of anchovies to the blender when I’m mixing up some sauce. The anchovies add a wonderful flavor depth.
I don’t know whether this would be cheaper if you have to actually buy the peppers – I suspect it would be a toss-up. Still, if you have your own peppers, it’s far cheaper and it tastes really, really good.
Q9: Old stock certificates
I have a weird question. I found a bunch of old stock certificates when I was cleaning out my grandmother’s house. I tried to look up all of the companies online and it looks like most of them are defunct, but a few are still in business. What should I do with these stocks?
The defunct ones might be interesting collector’s items, but they have no cash value.
Your best step with the stocks you are sure aren’t defunct is to contact the companies directly and find out about their transfer agent. Publicly traded companies usually employ a transfer agent that helps the company keep track of who owns shares. They’ll help you figure out what to do next.
Once you’ve been put in contact with the right transfer agent, you’ll probably have to track down some information about who owned the shares and fill out some forms. It takes some time, but eventually you’ll have those shares registered to you and they’ll then be easy to add to a brokerage account so you can manage them online, including selling them if you so choose.
Q10: Combining finances
My question is a pretty straightforward one: How do you go about combining finances? My fiance and I are getting married in three months. We anticipate combining finances either the month before or right after the wedding (I read that you recommend right after, which is what I’m now leaning towards). But we can’t figure out the exact mechanics of it. Do we just share all checking/saving account?s Share a savings account but keep separate checking? Or is it best to be joint owners of all accounts, but split them up so we have one (or more) for savings, one for bills, and separate accounts for our spending responsibilities/free money?
We normally really like talking about our finances and goals, but whenever we try to figure this out we just end up more confused. I think part of the fear is that even though we really want to be transparent about our money, we also want the option to save up and buy something, such as a present for each other or a planned splurge for ourselves, without giving away the surprise or needing to add the little splurge to the budget as a line item. I also don’t particularly relish having to go through and “divy up” the money between ourselves every few days or week based on our planned spending, though perhaps that’s inevitable.
You can do this in any of the ways you describe. Sarah and I have fully combined checking and savings accounts and that works well for us. In terms of what the money is used for, we just have a shared budget and trust each other to stick to that budget.
When we decided to make the change, we moved fairly slowly. We waited until we had some cash built up in checking, then we both moved to a new, shared account at a different bank (because we had recently moved). We shifted our direct deposits to the new bank, too. We left the old accounts open for a while with some cash in them to make sure that there weren’t any automatic bill payments or deposits we had forgotten about. After a few months, we just closed out the old accounts and moved the money to the new ones.
If you trust each other and have a reasonable budget, sharing all of your accounts makes a lot of sense. Most financial transactions are easier if you can both take care of them. The only advantage to separate accounts is that it makes it easier if you’re going to divorce.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iill 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.