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. When to replace a car
2. Two minute showers
3. Toys R Us liquidation advice
4. Stock investing advice
5. Overcoming fear of leftovers
6. Parents exhausting their 401(k)s
7. The two voices
8. Resisting urge to spoil children
9. Roth IRA alone enough?
10. Putting emergency fund in bonds
11. Bleached flour and yeast
12. HE washers and homemade soap
One of the questions in today’s mailbag is from a reader who is worried about the recent drop in stock prices. The thing is, whenever the stock market drops in value even a little, I get several messages like this. “What should I do?”
My advice is always the same, which you can read in the answer to that question.
I’m mentioning it here because most good personal finance advice is timeless. It works whether you have a high paying job or a low paying job. It works whether the stock market is going up or it’s going down. It works whether you’re young or you’re old. The principles stay the same.
The difficulty of personal finance is figuring out how to put those principles into practice. We’re all filled with emotions and impulses which aren’t always rational, and curbing them isn’t the easiest.
Principles stay true through thick and thin. It’s our emotions and impulses that muddy the waters.
Let’s dig into some questions.
Q1: When to replace a car
My wife and I both entered our marriage (three years ago) with the vehicles that had been gifted to us when we turned 15—a 2003 Toyota Corolla and a 2004 Chevy Cavalier. We are now 26 and 27 years old. For the first year of marriage, we continued to drive those cars, and, although the Cavalier was extremely trustworthy while I drove it, the car was starting to struggle and in fairly rough shape (appearance-wise) by 2015. We then purchased a used 2015 Toyota Rav4, at the end of 2015, and have been paying it off for the last two years. I have been driving the Corolla for the past two years, but the vehicle is starting to show signs of major wear. While I don’t really mind driving it, I’m afraid that it is about to reach the point where more and more money needs to be spent on keeping it up, and it was never my car of choice, so I would rather spend that money on another vehicle. I have considered purchasing an older used vehicle (I really like older Land Rovers) and having it refreshed, but I also like newer reasonably-priced vehicles like the Honda Civic. We typically take my wife’s car on any longer trips, and I doubt we will be putting a ton of mileage on whatever vehicle I get (except to alleviate some of the mileage on my wife’s new car). We will be paying on my wife’s car until December 2020. We could pay off my wife’s car early, but we got a solid interest rate. While I would prefer not to have two car payments, the timing of our vehicles reaching the end of their first lives is dictating that we take a new route, and, while not ideal, it could make financial sense, considering the state of the Corolla. I have read your typical strategies with regard to purchasing vehicles, and I think what we have done with our first cars fit that protocol. I’m just a little hesitant on what to do at this point. After end-of-the-year raises, we have wiggle room in our budget and solid savings to hold us up, if something were to go awry. Any wisdom you could pass my way?
– Brad
Buy a late model used reliable commuter car that’s highly fuel efficient, something like a Honda Civic or a Toyota Prius. That’s my advice.
If you’re taking out a loan for this car, that means you weren’t saving all the way along for the replacements for your original cars. That’s a mistake. My advice is, once you’ve paid off these cars, keep making somewhat smaller “car payments” to a savings account somewhere. Automate it and use an online bank like Capital One 360 or Ally for this. Make it, say, $200 a month per car.
When these cars are ready to give up the ghost, you can then tap your car savings and use that to write a check for the car instead of having to pay interest on the car loan. This also enables you to still replace that car even if your financial state isn’t as good – even if you don’t have a job or have poor credit, you can still buy a car with cash if needed, but probably not on a loan.
Q2: Two minute showers
You may have already talked about this, but thought I’d send it along, in case you hadn’t. My husband and I take 2 minute showers. You get in, get your hair wet (your body will also get wet) and then turn off the shower. You work shampoo into your hair (use it to also clean your body) and then turn the shower back on to rinse off. Since we want to conserve water as well as save money, this works out great for us. Really, once you start doing this, it seems routine. Now the idea of having the water run while I’m putting shampoo in my hair seems a terrible waste of water–and it is! Thanks for all the great tips over the years.
– Jeanine
This is a really simple strategy that can be summarized as such: if you’re not actively getting something wet (like a cloth or your hair or body) or you’re not actively rinsing soap from your body or hair, keep the shower off. Don’t let it just run uselessly over you.
A typical shower head pours out about three gallons of water per minute while it’s running – low flow heads get down to about two gallons per minute. It costs about a cent and a half to heat up a gallon of water to the nice warm shower temperature you like, and the water itself costs about a cent per minute. So, if you just let your showerhead run, the cost is about five cents per minute for typical warm shower water.
So, is this a big savings? Not big, but if you simply take a shower by getting your body and hair wet, turning off the water while you scrub your hair and body, and then turning it back on, you’re probably saving at least a couple of minutes of water running. If that’s ten or fifteen cents due to a couple flicks of the wrist (and probably more since the shower water isn’t rinsing soap from your body as you wash), it’s probably worth it. I usually do something similar, mostly so I can more easily tell where I’ve washed, because constant shower water washes away the soap and it’s sometimes hard to tell where you’ve scrubbed. Without the water running, it’s easy to tell – I think it makes the shower overall faster if I turn off the water for a while in the middle.
Q3: Toys R Us liquidation advice
I have two sets of twins, 8 years old and 3 years old. Birthday and holiday gifts get expensive. We were thinking of hitting the Toys R Us liquidation sales near us and stocking up on gifts for the next 1-2 years and putting them in some tubs in the garage. Any good strategies for liquidation sales?
– Tommy
If you’re looking just for big bargains, don’t even bother with the liquidation sales at first. Typically, liquidation sales start with everything being marked up to at least MSRP, and sometimes above, and then they’ll have a blanket sale with everything being 10% off. They’ll actually sell a lot of stuff at that point, but the prices are still higher than a lot of websites and other stores.
After a while, they’ll start increasing the discount. 20% off everything. 30% off everything. And they’ll keep dropping it until the store is empty.
My advice? Wait until it’s getting fairly close to the end if you’re just looking for bargains. You won’t get much of a bargain at all during the early days of a liquidation sale, since you’ll probably just be paying 10% or 20% off of MSRP. The big bargains don’t come until later, like the last three or so days before the store permanently closes. So, just hit the store when the sales get down into the 40%-60% off range, which will probably happen when the store is only open for another several days or so, and shop then. If you wait until the very last day or two, you’ll see prices knocked down to 90% off or more, but the store will be practically empty at that point.
Q4: Stock investing advice
I have been putting my retirement savings into VTSMX (Vanguard Total Stock Market Index, which is basically just a mix of a LOT of different American stocks) and so far this year it has lost money. What should I be doing with my retirement? Losses are unacceptable.
– Charles
This was the most stark of several messages I received over the weekend about the downward trend in the stock market since late January. Since its peak on January 26, the stock market has lost about 12% of its value and is now in negative territory for the year of 2018.
So, what should you do about it? Assuming that this is a long term investment and you don’t plan on tapping it at all in the next ten or more years, you shouldn’t be doing anything. Stocks are volatile investments, which means that sometimes they lose money. In 2008, the stock market lost 40% of its value. Most people who are quaking right now were not invested in stocks in 2008 – instead, they rode this incredible rebound from 2009 to 2017 and seem to now believe the the stock market goes up, up, and up. That’s not true – it goes down sometimes. That’s the reality of it.
Stocks are like anything else – they operate on supply and demand. As long as more people are wanting to buy stocks than there are people wanting to sell those stocks, the price will go up until they can agree. As long as more people are wanting to sell than to buy, the price will go down. Right now, more people are wanting to sell than to buy, for a number of reasons. There are more people out there at this moment who want to sell their stocks than there are people who want to buy them, so the price will go down until they can agree on a price.
It won’t go to zero because most shares are shares of good companies that pay out dividends – people want shares that pay out dividends, they just might not be willing to pay the current market price for them.
Over a long period of time, stocks almost always go up, but that’s a long period – ten years or more. If you’re looking at a period of just a few months, yes, there will definitely be periods where it goes down.
Q5: Overcoming fear of leftovers
When I was a kid my parents always threw out leftover food because they believed it would go bad and we would all get sick and die from it. I now know that this is not exactly true but I am still really uncertain whether or not something that’s left over is okay to eat. How do you do it?
– Dan
For the most part, I trust my eyes and my nose, and my fingers to a smaller extent.
If something looks normal and smells normal, I basically have no problem eating it. It’s okay if it looks a little dry, too.
Things I watch out for is sliminess that wasn’t there before and changes in color. If something looks wet or slimy, I toss it. If something has changed color, I toss it. If I touch something and the texture has significantly changed, like it suddenly has a wet or slimy layer on the outside, I toss it. If I notice something has curdled or grown mold and I didn’t intend for that kind of thing to happen, I toss it. (There are times when I do intentionally curdle milk for a recipe, for example, but when it happens without my intent, I don’t trust it.)
That’s really all I do. I find that just putting leftovers in the refrigerator in a closed container, or in the freezer in a closed container, is all I really need to do most of the time.
Q6: Parents exhausting their 401(k)s
My parents are both in their early 70s and in really good health. They travel a lot and visit us regularly and they go on hikes and all kinds of adventures, and that’s great. But I am worried that they’re burning through their retirement savings really fast.
We had a talk when they visited in March about long term plans. My dad has made me executor on all of their estate and is really open with everything with me and we talk about things often. I was doing some math on their 401(k)s and their balances are dropping really fast because of all of the money they’re taking out for trips and things like that. They recently bought a 2017 minivan (so that there’s room for family on road trips if needed) and just paid for it out of their 401(k).
It’s not a limitless bank and I am getting worried they are going to run it empty long before they pass away. I tried to talk to my dad about it and he just waited until mom was out of the room and said, “Honey, there’s probably going to be a morning before too long where me or mom won’t wake up, or one of us will get cancer or something. Every day we have left together is an adventure. We’re not going to sit around and wait to die.”
I understand that, but I am also worried that they are going to rely on me to take care of them when the money runs out. When I bring up that idea they just say that they’ll cross that bridge when they get there. I am worried that (a) they’ll rely on us to care for them or (b) just commit suicide when the money runs out because that is something they used to joke about and now don’t mention. What can I do?
– Jane
There isn’t much you can do. This is your parents’ money and they can decide to do with it what they wish. Your role is to decide what you’d be willing to do when their money runs out.
So, what are you willing to do? Could they live with you in several years? Would that work for you or for them? Can you give them any financial support if they reach that point?
They’re clearly aware of the financial problem, but perceive other things as being more important. You can’t make them feel differently. However, you do have a long runway to decide what you’ll do about it.
Q7: The two voices
How do I handle the constant war between spending less and having cheap experiences? Whenever I spend money on something that’s actually good, a voice in my head yells about how much money I’m spending and how I’m bankrupting myself. If I go the cheap route, the voice in my head yells about how I’m letting myself down and living like a weird hermit and have a terrible life. What can I do to make them both shut up?! Ha!
– Nicole
My solution is to cut back very, very hard on the 95% of things that really don’t matter to me, and then spend thoughtfully on really high quality things on the 5% of things that do matter to me. The trick is really figuring out what doesn’t matter and what does matter.
What do you really, really care about? What’s your main hobby? What one or two things really make you happy? What items do you use every day? Those are things where it’s much more okay to spend a little more and get high quality items.
At the same time, what things do you not care about as much, or only care about because a friend or loved one really cares? What hobbies do you not spend much time on, or just care about because a friend does, or that you used to care about but really don’t any more? What items do you rarely use? Those are things that are okay to cut back on and go the cheap route.
As for normal, routine items, my default is to go cheap until that cheap item gives me a very clear reason as to why it isn’t doing the job. The only typical item that I don’t buy in store brand form is trash bags because I’ve had some awful experiences with cheap ones and the small extra cost for decent ones saves me a lot of headaches. Almost everything else around our house is store brand in terms of household items and staples.
Q8: Resisting urge to spoil children
How do you resist the urge to spoil your kids?
– Monica
For me, I try to look at the long term instead of the short term when deciding whether to buy them things. What are they really going to remember in ten years? What lessons will they take away from this?
What I’ve come to realize is that they generally won’t remember the thing you bought for them in that moment, but what they will remember is that they didn’t have to curb a desire inside of them. It just got fulfilled for them, like magic. They didn’t have to wait for things they desired, and they didn’t have to accept that desires sometimes go unfulfilled. That doesn’t really lead to healthy spending habits as an adult.
The thing to remember is that you’re a parent, and one of the valuable lessons for a parent is to help teach your children how to control their impulses and how to handle potentially negative or destructive emotions. Knowing how to handle wants and desires is a big part of that, as is knowing how to express love and care without buying things.
Sure, it’s tempting to give your child everything he or she desires, especially if you didn’t have that happen when you were a child. However, the thing to remember is that giving that item is often mostly just fulfillment for you, because you enjoy giving that item and you enjoy the response. It doesn’t end up really helping the child at all; in fact, it often just sets up some unrealistic expectations in the child.
Q9: Roth IRA alone enough?
I am 23 years old and single. I am a contract employee in my field, which means no retirement benefits or 401(k). Is saving in a Roth IRA enough for retirement? What else can I be doing or should I be doing?
– Craig
The annual Roth IRA contribution cap is $5,500. So, let’s assume you max out your Roth IRA each year from 23 to 65 and earn an average annual return of 7% per year.
If you do that, you’d have $1,410,468 saved up when you’re 65 years old. However, that’s in 2061 dollars.
In 2018 dollars, assuming 3% average annual inflation, that’s
$395,697. If you take the safe withdrawal rate of 3% per year, that’s $11,870 per year, tax free.
If you choose to work to age 70 instead, the “real” annual amount jumps to $16,970, tax free.
Now, remember, that will be supplemented by Social Security, and that number holds true only if Roth IRA contribution caps never change and you never contribute more.
As long as you don’t plan to live extravagantly, it’s definitely doable. You’ll probably have other assets at that time, like a home, which will also help.
Q10: Putting emergency fund in bonds
My husband and I recently contributed to the PIMCO Income Class C, PONCX. I would like to ultimately contribute half of our emergency fund by contributing 5k every 6 months for 18months. This would equal 3 months of expenses. We would also keep 3 months of expenses in a regular savings account. The fund has traditionially yieled 7-8% a year and has never lost money. The operating expense is 1%. If we choose to take money out before 1 year it would cost us 1%. Is this bonds fund a reasonably safe for a portion of our money? We have additional liquid savings we use for daily life and home improvements. We contribute 15% to retirement and are in our 30s. We have one child and no debt other than a car lease and a mortgage. Thank you for any feedback you can provide.
– Erica
In general, I don’t like to invest money unless I can explicitly state what the purpose of that investment is. What is your reason for doing this?
It seems as though this is part of your emergency fund, but you’re investing it in something with a withdrawal fee if you need it any time soon and at least some level of investment risk. The purpose of an emergency fund is to have cash with extremely low risk and incredibly available, which is why a FDIC-insured savings account is a good place for it.
You seem to want more return from this money, which is fine, but if you’re doing that, it’s no longer an emergency fund. It’s an investment, with investment risk associated with it. What are you investing for? What are you hoping to achieve through that investment?
An emergency fund with three months of living expenses in it is perfectly healthy for a married couple without kids or with one kid, so taking the money you’re thinking of putting into this investment and investing it is fine. However, I wouldn’t think of it as an “emergency fund” any more, because you’re doing things with it that aren’t in line with the goal of an emergency fund. Instead, I’d think of what your goal with that money is. Is it for a house? Is it for early retirement? Then, invest it appropriately to match that goal.
Q11: Bleached flour and yeast
Another killer of yeast in breads is flour that has been bleached or bromated. Good bye yeast. The yeast may have been fine, but the whitening agents in the flour killed it. Sometimes flour package MARKED unbleached actually isn’t because of a miss bagging at the factory. Always something!!
– Margie
You are correct that bleached and bromated flours tend to have less naturally occurring yeast in them. If you’re trying to achieve natural rising of your bread (i.e., a sourdough), you should not use bleached or bromated flours.
However, in my experience, bleached flour tends to result in bread that rises too much, becoming overly soft and sometimes having big holes in the loaf. I use unbleached bread flour strictly to avoid that problem.
This, of course, is assuming you’re using a store-bought source of dry yeast, like Red Star, and you’re properly proofing it in warm water beforehand.
Q12: HE washers and homemade soap
Is the recipe compatible with HE labeled washing machines? I have use of a machine that is an HE and I don’t know what makes detergent compatible with them. I appreciate your response.
– Sarah
The homemade laundry soap recipe I use supposedly works just fine in HE washers, but I have no personal experience with HE washers, so I don’t know this for certain.
My recipe is really simple. I just mix two cups of washing soda, two cups of borax, and two cups of soap flakes together in a Gladware container. All of those things are powder, so I just put the powders in there and shake it around for a while. Then, I toss in a tablespoon as a measuring tool and use one tablespoon per load.
The cost per load for this is between 2 and 4 cents, depending on the source of the washing soda, borax, and soap flakes. Compare that to Tide, which is about a quarter per load, and that’s assuming you measure it accurately. If you do a load a day over the course of a year, that adds up to about $75 in savings.
Got any questions? The best way to ask is to follow me on Facebook 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.
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