Questions About Matching Funds, Light Bulbs, Library Book Sales, and More!

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. Roth IRA for down payment?
2. Employer matching funds question
3. Buying short term
4. Free light bulbs cost-effective?
5. Finding quality clothes
6. Goal rewards and financial success
7. “52 week money challenge” question
8. Library book sale strategy
9. Why Roth IRA?
10. Old photo albums
11. Children early or late
12. Goals for 2017

One of the challenging parts of being a parent is watching nice familiar routines with your children slowly fall away as they get older.

Our youngest child used to love to climb into our bed at about 6 in the morning and doze between Sarah and myself for about an hour. He did this for years and years. It was kind of fun waking up next to the little guy and either whispering with him for a bit if he was awake or covering him up if he was still asleep.

Over the last few months, that little routine has faded away. He just simply grew out of it.

There are times when you finally figure out the routines and thoughts and patterns of your child, only to find that they’re changing almost as fast as you can figure them out, so those things you’ve just figured out slip right through your fingers.

I now understand why sometimes, when I was younger, my parents would make guesses regarding what I would enjoy and undershoot my age, buying me things or doing things for me that I felt were “baby-ish.” They loved me and they were doing something for me that I would have absolutely flipped over not very long before, but I was growing up.

Now that I’m on the other end of it, I see how slippery it can be, as your children grow and their interests and passions change. I want to be aware of who they are now and not get it mixed up with who they were six months ago, to the absolute best of my ability.

It can be really hard to watch your children grow up.

Q1: Roth IRA for down payment?

In 2014, my then-fiance and I both received raises due to new jobs. We wanted to save the extra funds rather than spend them, and we already had emergency funds, personal savings, and were contributing significantly to our 401ks, so we both chose to open Roth IRAs. Later that year we married, and while we realized we failed to consider our future high joint income when opening our Roth IRAs, I assumed it would still take us several years to exceed the Roth IRA joint income contribution limit. However, we have been very fortunate in our careers and our Roth IRAs were only open for 2 years before our joint income prohibited us from contributing to them further. Our Roth IRA accounts only have about $9500 each and are now just sitting there. Today, we have an emergency fund, a car replacement fund, my husband is maxing out his 401k contributions and I am contributing 16% of my salary to mine, so I feel we are in good shape financially now and will meet our retirement goals later.

In a few months, we will pay off the last of my husband’s six figure student loan (making us debt free), and our next plan is to redirect the money we used to spend on loans to save a 20% down payment for our first home, which in our neighborhood will likely take a few years. I’ve noticed that there is an option for first time homebuyers with Roth IRAs more than 5 years old to use the money towards a down payment without any kind of penalty. I am 31 and my husband is 39; while I know that our Roth IRAs will grow over the next 20-30 years, I wonder whether the growth will be that significant with the sums being so low and without our being able to contribute to them further. In this scenario, might it make sense for us to consider including our Roth IRAs as we save for our down payment for our first home? Or should we leave them alone?
– Melanie

Ordinarily, it’s a poor idea to use retirement savings for other purposes. However, in your situation, you’re saving a lot for retirement outside of your Roth IRAs, which is a great thing.

Obviously, the best overall move would be to leave the Roth IRA alone, save even harder, and get the 20% on your own without tapping the Roth so you can use it in retirement. What you’re really weighing is whether or not it makes sense to empty out your Roth IRA contributions now so that you can get into a house a year or so earlier than you otherwise would.

Since you already have retirement savings well in hand and the amount in your Roth is relatively small compared to what you should be building in your 401(k) plans, I think using your Roth contributions is a completely reasonable idea. It’s not something I would do unless I were contributing a lot to retirement in other forms, which you are.

Q2: Employer matching funds question

I left a job a couple of months ago at a large corporation where we had an amazing 401k plan through Fidelity. I took a job at a small company of eight people and they also offer a 401k plan. Unfortunately, the options seem terrible. The plan is through American Funds and no available investment has an expense ratio below 1.38%. I used to max out my 401k and my Roth, but now it doesn’t seem worth it to continue maxing out the 401k. I should also mention that the new company matches up to 4% of my contributions. Do I just put in enough for the match, continue maxing out my Roth, and invest the rest in a taxed fund through Vanguard? I’d probably want to do a Target Date fund if I did invest in the new 401k, but that has a ratio of 1.54%.
– Marcus

Even with the terrible expense ratio, it’s still worth your while to get the matching funds from your employer. That’s still free money on the table.

As I pointed out in an earlier article, over a period of 40 years, a 1.5% expense ratio will devour about a third of your overall investment. However, if you get matching funds on your investment, that effectively doubles it right off the bat. That more than makes up for it.

Imagine, if you will, that you have a dollar to invest. You can invest it in an investment with no expense ratio, or you can double it immediately putting it in a 1.5% expense ratio investment. After 40 years, you’ll still have about 25% more in the 1.5% expense ratio investment than you would in the zero expense ratio investment, just because that initial matching is so good.

I’d contribute up to the match, but not a penny more.

Q3: Buying short term

I will be soon relocating for work to Raleigh, NC. I am interested in purchasing a row house/condo instead of renting. This is mainly due to being able to buy a nicer place for a lower mortgage than I could afford to rent and because I like the idea of paying into equity.

I could put down a 13% down payment on a $150,000 condo but would aim to find something closer to $125,000. I know that if I stay there more than 7 years this is likely a good move, but what if I am relocated for work? There would be a significant chance that I need to move in the next 2 years to move up. Would relocation benefits make it worth it?
– Anna

It is almost never worth your time or money to buy if you’re going to move in two years. Your property will rarely gain much value and you’ll have to pay costs on both the purchase and the sale, along with two years of property taxes and insurance, without gaining much equity. The cost per month for that is almost always going to be higher than renting.

You’re absolutely correct, though, in observing that the equation changes if you stretch it out to seven years or so. It’s those years when you’re just making a mortgage payment like clockwork and are slowly contributing more and more to the principal of the mortgage over time that you begin to build equity and the value of buying a home comes to the forefront.

Over a two year period, the time and expense of both buying and selling are so crushed together that they smother any potential equity growth that comes in those two years. I wouldn’t do it if there’s a strong chance you’re going to move in two years.

Q4: Free light bulbs cost-effective?

A friend of mine saw on some television show that you should remove all incandescent bulbs from your home and replace them with LED bulbs. She did this and then gave me all of her old incandescents. I’ve been switching to LED bulbs as each incandescent burns out. Is it cost effective for me to use these free incandescents?
– Chloe

Let’s assume that the bulbs you received are halfway through their lifespan on average and have 500 hours of use left. Let’s also assume that they’re all 60 watt bulbs, and that the equivalent LED bulb is 12 watt (which is roughly accurate). Over those 500 hours of use, your incandescent bulb is going to use 30,000 watts of power, or 30 kW. With electricity prices around $0.13 per kilowatt-hour, it’ll cost you $3.90 to power that incandescent over those 500 hours. In comparison, the LED bulb will use about 6 kW of power, which will cost you $0.78 to power it.

Even with the bulb being free, it’s actually not cost-effective to stick it in your socket.

What about the environmental concern of throwing away a bulb? It depends a lot on what’s producing the power that goes to your light socket. If it comes from a typical coal plant, you’re burning coal in order to use that extra energy if you put the incandescent bulb in the socket and use it, and it’s still going to wind up in the trash.

I’d not bother with the free bulbs. They’re not going to be cost-effective and you’ll still need to get new bulbs before too long.

Is it a good idea to run through your home and replace all incandescents with LEDs? If you do everything all at once, it can save you both a little time and a little money over the long run.

Q5: Finding quality clothes

How exactly do you tell if an article of clothing is well made or not? Are there things you can look for? I go to clothing sales sometimes but can’t tell what’s worthwhile.
– Sam

There are a LOT of things you can look for. For starters, if it feels flimsy or fragile or that it could tear easily, avoid it. You should never be able to see through a fabric, ever. Make sure there is no polyester or acrylic in the fabric, as that stuff wears out faster than a shaggy dog joke. Look for any sign of threads hanging loose from seams or any snags that you can notice and avoid all of that.

You can get a little information from where the item is made. Generally, items made in the US and European nations are usually pretty well made, as are items from South America (Peru is often an origin of well made clothes). Items made in China are very much a mixed bag – that isn’t a sign of cheapness in itself, but can appear on cheap items. Items made in South Asia are usually made as cheaply as possible and best avoided; those nations tend to have labor practices that encourage sweatshop labor and extremely rushed production to get items out as cheaply as possible and with quality to match.

This really could be a post all on its own, but those guidelines alone should help.

Q6: Goal rewards and financial success

My husband and I are trying to lose weight in 2017. We have agreed that if we both meet our weight loss goals, we’re going on a trip we’ve talked about for a long time. We will book it on the day we both reach our goal. My concern is whether or not we can really afford going to a resort in Jamaica. It is an amazing carrot out in front of us but the cost of it is intimidating. Should we be using a different “reward” for achieving our goal?
– Sammi

There’s nothing wrong with using this goal as your “carrot” to encourage you to make healthier choices.

The thing to remember is that once you reach your goal, there is nothing forcing you to book that trip. You can decide then and there whether or not it makes sense for you to actually go on that trip to Jamaica. You may decide that it doesn’t make sense and instead substitute a different weekend getaway or some other reward, or entirely forego the reward.

You haven’t invested that money yet. I don’t think there’s anything particularly wrong with having that kind of a dream. The only concern I’d have is what you do when it comes time to actually put the money down.

Q7: “52 week money challenge” question

A lot of my Facebook friends have been sharing a 52 week money challenge the last few days. If you haven’t seen it, it’s a chart that helps you save $1,378 over the course of a year. The first week you save $1, then the next week you save $2, and then so on so that the last week you save $52. That adds up to $1378.

Does this really work? I know the numbers add up but it seems to me that you get into June or July and you’re putting away $40 a week or whatever and you’re still a LONG way from your goal and you’ll just quit. It’s like a weight loss goal except the effort required keeps going up.
– Emily

This question pops up every once in a while, usually around the turn of the calendar year.

The “52 week money challenge,” as you describe so well above, actually does work. If you follow along with it, you will wind up with $1,378 in the bank. The problem, as Emily so astutely points out, is that the big contributions occur later in the program. It’s easy to put away $1 or $2 early on when you’re excited. It’s much harder to put away $38 in the middle of August when you have lots of other things going on, you’re not as excited, and the goal seems very far away still.

I offer a different suggestion. Instead of just following that plan week after week, at the end of each week, choose one of the dollar amounts and put that much in your savings. During a week where you have plenty of money left over and you’re really excited, put away $50 or $52 and knock off one of the big numbers. On a week where things are challenging, save $1 or $2 or $5. Whatever number you choose, put that money into savings and cross off that line on the challenge.

That way, you can get rid of some of the big numbers now when the enthusiasm is strong and then later when things are tougher, you can contribute a small number and still be sticking with the challenge.

Q8: Library book sale strategy

My local library has what they call a “progressive” book sale of donated books and books they no longer want. It goes over four nights. On the first night, it costs $2 to get in and all books cost $2. The second night, it’s free to get in and all books cost $2. The third night, it’s free to get in and all books cost $0.50. The last night, it costs $1 to get in, you bring canvas bags with you, and a canvas bag full of books costs $1, and you can bring as many bags as you want. Later nights are obviously cheaper per book but they’e picked over. What do you think is the “bang for the buck” night?
– Thom

First of all, do you have any idea of what books might be on sale? If the sales look good and you can see yourself buying several books that might be in demand, you should go on the first night. If you see yourself buying just a book or two but there are lots you might buy, go the second night. I would probably skip the third night unless I was the first person in the door. If you want to pick up lots of books to read and many of the ones you want aren’t ones you think will be in demand, go the last night.

Given that I’m a big fan of local libraries and I’m also a voracious reader, I’d want to support my library. I would personally go on the first night and try to buy five books or so, spending $10 or so, then I might go back on the last night and fill up one or two bags with books of moderate interest, spending $2 or $3.

Our local library has a similar sale, actually, and almost every day is crowded. I think the different price levels attract different people.

Q9: Why Roth IRA?

If you think your tax rate now is higher than what it will be in retirement why would you ever use a Roth IRA? I make more money now than I think I will ever bring in retirement. So paying taxes now to avoid them later seems silly.
– Derek

There are a number of reasons.

First, no one knows what will happen to tax rates in the future. Everyone seems to forget that current tax rates are very close to post-World War II historic lows. Especially during the 1950s, 1960s, and 1970s, income taxes were far higher than they are now. We’re also in substantial debt and the baby boomers are leaving the workforce. It is completely reasonable to think that tax rates will go up in the future, and that’s one of the big protections that a Roth offers.

Second, an avid retirement saver might end up with as much income in retirement as they have while they’re working. Sarah and I anticipate very little change in income when we retire, for example.

Third, and finally, Roth IRA contributions can be used for other purposes. Once the money has been in place for five years, you can use your contributions for anything (you just can’t touch the growth without penalty). You can’t touch anything within a 401(k) without penalty. This makes a Roth a lot more flexible as a savings vehicle.

It has a lot more to do with your assumptions about the future than anything else. That’s why I encourage most people to balance Roth and non-Roth retirement savings.

Q10: Old photo albums

Do you know of a cost effective way to digitize old photo albums? My mom has a bunch of old family photo albums many inherited from grandma and we want to preserve all of this stuff digitally. But every time we are quoted a price it seems astronomical. HELP!
– Nina

This is another question that I get somewhat regularly.

The truth is that digitizing photos is simply an expensive process if you want it done with any quality. There’s no way around it. It takes a lot of time and some equipment to scan each photo, touch them up at least a little, keep them all organized, save them properly, and return all of the original materials to you. There is no way to do that cheaply. There is equipment to scan large quantities of photos very quickly, but the industrial sized equipment is way more expensive.

If cost really is prohibitive for you, the best option you have is to get a low cost scanner and start scanning them yourself into your home computer. This will take a lot of time, but once you figure it out, it’s pretty easy to do it, so easy that you can do it while doing other things on your computer. Scan 10 pictures while you’re checking websites or 15 while you’re answering email and soon you’re through thousands of them. Just make sure you back them all up somewhere. I recommend using an external hard drive for backup or a cloud service like Dropbox or Carbonite.

Q11: Children early or late

Is it better to have children early in life (early 20s) or later? In terms of career, cost, ease of parenting, etc.?
– Penny

I’m glad that we had our children in our late twenties and early thirties. It felt like the right time for us. We had time to finish our education and get a career started before we had children, but we also didn’t wait so long that risks like birth defects or aging became a factor.

Honestly, though, I think it has a lot more to do with when you’re ready than any markers put in place by anyone else. You’ll know. If the thought of parenthood sounds terrible or scary, then you’re not ready to do it and shouldn’t do it. If it sounds far more exciting and fulfilling than anything else and you’re really looking forward to it, then you’re ready.

Don’t let anyone push you into having kids if you’re not ready to have them. You will regret it forever. Make the choice on your own terms, period.

Q12: Goals for 2017

What are your goals for 2017? You usually write a “goals” post but I didn’t see one this year!
– Tim

I have two goals for 2017.

The first is to track my calories carefully for the entire year. If I put something in my mouth, I have to record the calories first. I don’t have any weight loss goals or anything, but I think it will inevitably happen as I become more aware of the caloric content of my typical meals and the foods I commonly eat.

The second is to launch a Youtube channel I’ve been planning for a while. I want to get a lot of videos in the can before I launch it, though, so I’m actually just making videos, establishing something of a routine for making them, and posting them privately to Youtube so I can begin making them public later on.

I feel good about both goals so far!

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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